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Chapter 12

MHR 523 Chapter Notes - Chapter 12: Piece Work

Human Resources
Course Code
MHR 523
Margaret Yap

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Chapter 12: Pay for Performance and Financial incentives
๎€Variable pay: any plan that ties pay to productivity or profitability
๎€More than 80% of Canadian employees have one or more variable pay plans
๎€Line of sight: extent to which an employee can relate his/her daily work to the achievement of
overall corporate goals
Incentives for operations employees
๎€Piecework plans: oldest, most common. Earnings are tied directly to what the worker produces
(per piece)
oStraight piecework plan: payment for each piece produced
oGuaranteed piecework plan: minimum wage plus per piece
oAdvantages: simple to calculate, performance increases
oDisadvantages: employers may up production standards if employees are earning too
much; rigidity; not willing to rotate jobs; machines wear out; quality standards arenโ€™t met
๎€Standard hour plan: premium that equals the percentage by which workersโ€™ performance exceeds
the standard
๎€Team/group incentives:
1. All are paid wage of highest producer
2. All are paid wage of lowest producer
3. All are paid average wage of all production
Incentives for senior managers and executives
๎€Short-term incentives: The annual bonus
๎€Key position
๎€Salary-level cut-off point
๎€Salary grade
oHow much to pay out (fund size)
oDetermining individual awards: many different approaches
๎€One approach: split-award method โ€“ 2 bonuses; one based on individual
performance, one on company performance
๎€Long-term incentives:
oStock options: right to purchase a specific number of shares of company stock at a
specific price during a period of time
oPlans providing share โ€œunitsโ€: paid if financial targets are achieved
๎€Performance share unit plan: as above
๎€Restricted share plan: executive canโ€™t leave before vesting period or $ wonโ€™t be
paid out
๎€Deferred share plan: only payable when exec leaves
oRelating strategy to executive compensation
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