HRM303 Chapter Notes - Chapter 11: Fide, Libertarian Socialism, Income Tax

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Chapter 11: designing performance pay plans
Gain sharing plans
Defining feature of gain sharing plans is that whenever employees in
particular work group are able to reduce costs of increase productivity
Types of gain sharing plans
Scanlon plan: gain sharing plan that creates mechanisms for employee
participation in developing productivity improvements and that shares the
financial benefits of those improvements with employee group that
generated them
Rucker plan: gain sharing plan similar to Scanlon plan but that expresses
labour costs as percentage of value added
Improshare: gain sharing plan that focuses on labour hours per unit of
output and that does not usually include worker participation
oDisadvantage: it does not take other cost savings into account
Family of measures plan: gain sharing plan that uses a variety of measures
to determine the extent to which a bonus payout is justified
oA gain (or loss) is calculated for each measure separately and results
are then aggregate to determine size of bonus pool
oKey attractions of this method are flexibility and focus
oDisadvantages: some of payouts are not based on calculated cost
savings but rather on achievement of certain goals
Issues in designing gain sharing plans
1. Defining the group or work unit to be included in the plan
a. All employees who are in a position to significantly affect the results
of the plan should be included
2. Establishing the bonus formula
a. The simpler the formula, the better
b. Most plans typically include a number of performance measures
3. Defining the baseline against which to measure improvement
a. Company can use its past two or three years of productivity results
and compute an average
b. Procedure is only valid only when baseline over this period does not
show a markedly upward or downward trend
4. Deciding on the share between the company and the employees
5. Deciding on the split among employees
6. Deciding on the frequency of payout
7. Developing procedures for communicating results
8. Deciding whether and how to incorporate employees participation
Goal sharing plans
Work groups or teams receive a bonus when certain prespecified
performance goals are met
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Goal sharing plans differ from gain sharing plans
oIn gain sharing, cost savings are quantified and then shared between
company and group
oGoal sharing, there is typically no systematic link between
performance improvements and goal sharing bonus pool
oIn gain sharing, there is expectation of continuity and system will not
be changed arbitrarily
oIn goal sharing plans are more flexible
Types of goal sharing plans
Single goal plans: simplest and focus attention on one key goal (customer
satisfaction)
Multigoal plans: single goal plans cause other behaviours to be neglected so
most firms use multigoal plans to cover range of behaviour
Financial funded plans: combine two sets of criteria
Issues in designing goal sharing plans
1. Define the group to which goal sharing applies
a. The smaller the group, the stronger the motivation but the group must
include all employees who can play a significant role in goal
achievement
2. Decide on nature of goals to be sought
a. Must be important to organization and controllable by work group
and encompass the full range of desired behaviour
3. Determine levels and time frames for goal achievement
a. Goals that are too difficult do not motivate behaviour
b. Goals that are too easy do not motivate
4. Establish the bonus amounts
5. Decide on split of bonus among employees
Profit sharing plans
Types of profit sharing plans
Current distribution (majority of Canadian profit sharing plans)
Deferred profit sharing
Combination
Establishing current distribution plan does not require any approvals by
government, unless firm wants to register as “employee profit sharing plan”
(EPSP)
Deferred profit sharing plan (DPSP) is tax deferred plan, registration with
federal gov’t is required
Issues in designing profit sharing plans
The formula for bonus determination (fixed or discretionary)
oLink between performance and reward becomes even more tenuous
than otherwise
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