MHR 523 Chapter Notes - Chapter 12: Piece Work

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20 Jun 2011

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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 arent met
Standard hour plan: premium that equals the percentage by which workers 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 – 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 units: paid if financial targets are achieved
Performance share unit plan: as above
Restricted share plan: executive cant leave before vesting period or $ wont be
paid out
Deferred share plan: only payable when exec leaves
oRelating strategy to executive compensation
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