Human resrouce management 12th mathis jacson chapter 0013

Variable Pay: Incentives for PerformanceVariable Pay Assumptions Some people perform better and are more productive than others Better performing employees should receive more compensati

Chapter Objectives

Chapter Objectives

pay-for-performance plans.

group/team variable pay plans.

common organizational incentive plans.

compensated.

criticisms of executive compensation levels.

After you have read this chapter, you should be able to:

Variable Pay: Incentives for Performance

Variable Pay Assumptions

Some people perform better and are more productive than others

Better performing employees should receive more compensation

Some jobs contribute

more to organizational success than others

Part of compensation should be tied directly

to performance and

results

FIGURE 13-1

Examples of

Incentives

Developing Successful Pay-for-Performance Plans

Performance

Reward and recognize employee performance

Promote achievement of

HR objectives

FIGURE 13-2

Metric Options

for Variable

Pay Plans

Successful Variable Pay Plans

Effective Incentive Plans

Does the Plan

Fit the

Organization?

Does the Plan Reward the Appropriate Actions?

Is the Plan Administered Properly?

Why Variable Pay Plans Fail

Plan incentives are not seen as desirable

Plan doesn’t reward doing a good job

Plan doesn’t motivate

Plan rewards teams/groups rather than individuals

Plan doesn’t increase base pay

Employees’

View of Variable Pay Plan

Developing Successful Incentive Plans

Develop clear, understandable plans that are continually communicated.

Use realistic performance

Individualism must

be stressed in the organizational culture

FIGURE 13-3 Categories of Variable Pay Plans

Individual Incentives

FIGURE 13-4 Purposes of Special Incentives

Why Organizations Establish Variable Pay

Plans for Groups/Teams

Based Variable Pay Plans

or production quality

Increase employee retention

Design of Group/Team Incentive Plans

Group/Team Incentive Plan

Decisions About Group/Team Incentive Amounts

Group/Team Incentives (cont’d)

“unfair” by employees who work harder, have more capabilities, or perform more difficult jobs

incentive decisions for co-workers

FIGURE 13-5 Conditions for Successful Group/Team Incentives

Types of Group/Team Incentives

through improved organizational results on the basis

of group output, cost savings, or quality improvement

gains in productivity through increased discretionary efforts

• Variability of profits from year

to year

• Profit results not strongly tied

to employee efforts

Profit Sharing

FIGURE 13-6 Framework Choices for a Profit-Sharing Plan

Employee Stock Plans

fixed number of shares of company stock at a

specified price for a limited period of time

option price, employees can purchase the stock and sell it for a profit

specified option price, the stock option is

“underwater” and is worthless to employees

Employee Stock Plans

ownership in the organization for which they work

Types of Sales Compensation Plans

sales in units or dollars

future commissions to salesperson

and part commission for incentive

FIGURE 13-7 Sales Metric Possibilities

Effectiveness of Sales Incentive Plans

Frequent changes in sales plans

An “entitlement” culture

Pay without performance

Poor quota setting

Small differences in pay for top and bottom performers

Causes of Ineffectiveness

in Incentive Plans

“Reasonableness” of Executive Compensation

Executive Compensation Considerations

and Concerns

Would another company hire this person as an

executive?

How does the executive’s compensation compare with that for executives in similar companies?

What would an investor pay for the level of performance of the executive?

Is the executive’s pay consistent with pay for other employees within the company?

FIGURE 13-8 Common Executive Compensation Criticisms