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# Building pay structures that recognise individual contributions

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Building Pay Structures That Recognise Individual Contributions - Constructing a Pay Structure – Designing Pay for Knowledge Program

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### Transcript of "Building pay structures that recognise individual contributions "

1. 1. Building Pay Structures That Recognise Individual Contributions - Constructing a Pay Structure – Designing Pay for Knowledge Program By Dr. G C Mohanta, BE, MSc (Engg.), MBA, PhD (Mgt.), Professor, Al-Qurmoshi Institute of Business Management, Hyderabad, India Merit Pay A common method which has long been in existence is pay increases - in the form of increments, for example, for individual performance. Its workability and effectiveness depend on the existence of a suitable performance appraisal system. Designing Merit Pay Systems Merit increase amounts can be (i) Diminishing marginal returns (ii) Just-meaningful differences (iii) Increase as substantive (equity theory) (iv) Recurring vs. non-recurring merit pay increases or (v) Present level of base pay Timing of increase can be (i) Common review date (ii) Anniversary date Rewarding performance is made based on merit pay grid, performance and position. Merit Pay Grid CurrentAnnualSalary Performance Rating Excellent Above Average PoorAverage Below Average 7% 5% 3% 0% 0% 9% 7% 6% 2% 0% 12% 10% 8% 4% 0% \$60,000 \$55,000 \$50,000 \$45,000 \$40,000 \$35,000 \$30,000 \$25,000 \$20,000 Q3 Q2 Q1
2. 2. Merit Pay Grid Higher Pay for Performance (1)Well Above Average (2) Above Average (3) Average (4) Below Average (5) Well Below Average Q4 (max pay) 7% 5% 3% 1% 0% Q3 8% 6% 4% 2% 0% Q2 9% 7% 5% 3% 0% Q1 (min pay) 10% 8% 6% 4% 0% Performance Lo% Hi% Position in Range High % Low % Percent increase already allocated: 6.3% Incentive Payments Sales force can be considered as a special group. High initiative is needed. There should be customer focus and periodic feedback to company. The sales force has to work for extended periods without supervision and they need to stay motivated regardless of any supervision. Willingness to work hard can make difference between success and failure and hence incentive is to be provided to them. Designing Sales Incentive (Compensation Plans) Alternative sales compensation plans can be (i) Salary only (ii) Salary-plus-bonus plans (iii) Salary-plus commission (iv) Commission-plus-draw (v) Commission-only Determination of fixed pay and the compensation mix can be made based on (i) Influence of salesperson on buying decision (ii) Competitive pay standards (iii) Amount of non-sales activities (iv) Non-cash incentives. Pay for Knowledge Programs Pay-for-knowledge programs, also known as pay-for-learning, skill-based compensation, knowledge-based pay, or pay-for-skill programs. Milkovich and Newman state: “Pay-for-learning structures, link pay to depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work. Structures based on skill, pay individuals for all the skills for which