MHR 523 Study Guide - Career Development

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17 Apr 2012
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CHAPTER 12 – PAY FOR PERFORMANCE AND FINANCIAL INCENTIVES
MONEY AND MOTIVATION
Variable pay: any plan that ties pay to productivity or profitability ie(financial
incentives, pay –for –performance, variable compensation plans)
Point get workers to take company goals as their own get treated like partners
with pay like partners
Keeps base pay inflation controlled
Top performers must get top pay in order to secure commitment need accurate
performance appraisal methods
Employees must have line of sight the extent to which an employee can relate
his or her daily work to the achievement of overall corporate goals
Types of Incentive Plans
1. incentives for operations employees
2. incentives for senior managers and executives
3. incentives for salespeople
4. incentives for other managers and professional employees
5. organization wide incentives
INCENTIVES FOR OPERATIONS EMPLOYEES (ie. Production)
Piecework Plans
oldest plans payment based on number of items processed by each individual in
a unit of time (ie. Hours or days)
development needs job evaluation (minimum wage) and industrial engineering
(standard rate of production)
wage/rate of production = rate
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Straight Piecework Plan
a set payment for each piece produced or processed in a factory or shop
Guaranteed Piecework Plan
the minimum hourly wage plus an incentive for each piece produced above a set
number of pieces per hour
Advantages
simple to calculate for employees
fair/ equitable in principle
powerful incentive value rewards directly related to performance
Disadvantages
unpleasant reputation among employees employers tend to raise standards
whenever they see employees achieving above them
new job evaluation = new hourly wage rate = need for piece rate to be revised =
tedious task
worker resistance to when production standards need to be revised
workers might start ignoring quality
employees only trained to do number of tasks new technology or innovation
introduced meets heavy resistance and failure in introduction
Standard Hour Plan
base rate + standard for production employee goes over the standard of
production % over = % increase in pay
ie. Base rate = $10/hour
production standard = 20 units/hour OR 3 minutes/
unit
produced = 200units in 8 hours
according to standards: should have
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produced 160 units in 8 hours & taken 600 minutes to produce 200 units
produced at a rate 25 % higher
regular pay = $80 employee gets 1.25 +80
people are not mentally linked to number of units produced quality isn’t low
etc
Team or Group Incentive Plans
production standard is set for a specific work group and its members are pain
incentives if the group exceeds the production standard
several reasons to use it some jobs interrelated (ONE worker can’t get bonus if
everyone did it)
reinforce group planning and problem solving
disadvantage: each workers rewards no longer based solely on their own effort
less motivating to an individual
ICENTIVES FOR SENIOR MANAGERS AND EXECUTIVES
SHORT TERM INCENTIVES: THE ANNUAL BONUS
Salaries don’t decline with decreased performance
Shor tterm incentive bonuses can easily lead to an increase OR decrease of 25% +
in total pay relattieve to the previous year
Three issues to consider eligibility, fund-size determination, and individual
awards
Eligibility
3 ways to decide
i) key positiondo key jobs have a measurable impact on profitability
ii) salary level cut off point – all employees earning over an amount are eligible
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