Week 22 - Chapter 12
Money and Motivation
•Variable pay is any plan that ties pay to productivity or profitability.
oThe fundamental of this is that top performers must get top pay in order to secure their
commitment to the organization.
•Types of Incentive Plans
oThere are several types of incentive plans:
Individual incentive programs give income over and above base salary to individual
employees who meet a specific individual performance standard.
Informal incentives may be awarded, generally to individual employees for
accomplishments that are not readily measured by a standard.
Group incentive programs are like individual incentive plans, but they provide payments
over and above base salary to all team members when the group collectively meets a
specified standard for performance, productivity, or other work-related behaviour.
Organization-wide incentive plans provides monetary incentives to all employees of the
Non-Monetary cognition programs motivate employees through praise and expression s
of appreciation for their work.
Incentives for Senior Managers and Executives
Most employers award their senior managers and executives a bonus or an incentive because of the role they play in
determining divisional and corporate profitability.
Short-Term Incentives: The Annual Bonus
•3 Basic issues that should be considered when awarding short-term incentives: eligibility, fund-size
determination, and individual awards.
3 ways to decide:
•Key position – Jobs that have a measurable impact on profitability
•Salary-level – Set a cut-off point: all employees earning over that amount are
automatically eligible for consideration for short-term incentives.
•Salary grade – All employees with a certain grade or above should be included
into the short-term incentives.
oHow much to pay out (Fund Size)
The total amount of bonus money that will be available.
oDetermining Individual Awards
The amount is determined on a discretionary basis, but typically a target bonus is set for
each eligible position and adjustments are then made for greater or less than targeted
Split-award method – breaks the bonus into 2 parts, one being individual performance
and the other based on organization’s overall performance.
Multiplier method – Employee whose individual performance was “poor” might not even
receive a company-performance-based bonus. Assumption that the bonus should be a
product of individual and corporate performance.