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Chapter 12 dessler 12-ce_ppt_ch12

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  • 1. Chapter 12: Pay-for-Performance and Financial Incentives Pay-for-Performance and Financial Incentives | 12-1 Copyright © 2014 Pearson Canada Inc. All rights reserved. Dessler, Chhinzer, Cole Human Resources Management in Canada Canadian Twelfth Edition
  • 2. Learning Outcomes • EXPLAIN how to use short-term and long-term incentives for managers and executives. • ANALYZE the main advantages and disadvantages of salary plans and commission plans for salespeople. Pay-for-Performance and Financial Incentives | 12-2 Copyright © 2014 Pearson Canada Inc. All rights reserved. • DISCUSS how piecework and team or group incentive plans are used.
  • 3. Learning Outcomes • COMPARE the three types of organizationwide incentive plans. • EXPLAIN under what conditions it is best to use an incentive plan. • ANALYZE the emerging emphasis on employee recognition. Pay-for-Performance and Financial Incentives | 12-3 Copyright © 2014 Pearson Canada Inc. All rights reserved. • EXPLAIN why money is somewhat less important as an incentive for professional employees than it is for other employees.
  • 4. Money and Motivation Fixed pay • includes base pay, allowances Variable pay • any plan that ties pay to productivity or profitability • may be in addition to base pay Pay-for-Performance and Financial Incentives | 12-4 Copyright © 2014 Pearson Canada Inc. All rights reserved. • compensation independent of performance level
  • 5. reserved. Copyright © 2014 Pearson Canada Inc. All rights reserved Variable Pay Programs, 2011 Pay-for-Performance and Financial Incentives | 12-5
  • 6. Types of Incentive Plans • operations employees • senior managers and executives • other managers and professional employees • organization-wide Pay-for-Performance and Financial Incentives | 12-6 Copyright © 2014 Pearson Canada Inc. All rights reserved. • salespeople
  • 7. Incentives for Operations Employees – Piecework Plans • oldest and most commonly used plan • based on production standard • guaranteed piecework plan • differential piecework plan Pay-for-Performance and Financial Incentives | 12-7 Copyright © 2014 Pearson Canada Inc. All rights reserved. • straight piecework plan
  • 8. Piecework Plans • advantages: • disadvantages: • • • • some employers arbitrarily raise standards difficult to adjust for changes in hourly rates resistance to revising the standard quality may be compromised Pay-for-Performance and Financial Incentives | 12-8 Copyright © 2014 Pearson Canada Inc. All rights reserved. • simple • appears equitable • directly tied to performance
  • 9. Incentives for Operations Employees – Team or Group Incentives • incentives paid if the group exceeds the standard Pay-for-Performance and Financial Incentives | 12-9 Copyright © 2014 Pearson Canada Inc. All rights reserved. • production standard is set for a specific work group
  • 10. Implementing Team or Group Incentives • members paid based on highest performer • members paid based on lowest performer • members paid based on average performance 2. set standards for the group as a whole • all members paid equally 3. use a group defined measure of performance Pay-for-Performance and Financial Incentives | 12-10 Copyright © 2014 Pearson Canada Inc. All rights reserved. 1. set standards for each member of the group
  • 11. Incentives for Senior Managers and Executives • short term incentives – annual bonus • long term incentives – capital accumulation • stock options • performance share units plan • appropriate link to strategy Pay-for-Performance and Financial Incentives | 12-11 Copyright © 2014 Pearson Canada Inc. All rights reserved. • who is eligible? • how much to pay? • individual rewards?
  • 12. reserved. Copyright © 2014 Pearson Canada Inc. All rights reserved Long-Term Incentive Plans, 2011 Pay-for-Performance and Financial Incentives | 12-12
  • 13. reserved. Copyright © 2014 Pearson Canada Inc. All rights reserved Stock Option Deductions Pay-for-Performance and Financial Incentives | 12-13
  • 14. Executive Compensation Plan Recommendations • group executive compensation components into a whole plan • check plan for legal compliance and tax effectiveness • review/evaluate plan whenever a major business change occurs Pay-for-Performance and Financial Incentives | 12-14 Copyright © 2014 Pearson Canada Inc. All rights reserved. • define internal and external issues facing the company
  • 15. Incentives for Salespeople Salary plan Commission plan • pay in direct proportion to sales generated Combination plan • base salary plus commission Pay-for-Performance and Financial Incentives | 12-15 Copyright © 2014 Pearson Canada Inc. All rights reserved. • fixed salary
  • 16. Incentives for Salespeople: Salary Plan • • • • works for prospecting and account servicing sales people know their income in advance easy to reassign sales people enhances long term perspective • disadvantages: • high performance not recognized/rewarded • salary usually based on seniority, demotivating for high performing sales people Pay-for-Performance and Financial Incentives | 12-16 Copyright © 2014 Pearson Canada Inc. All rights reserved. • advantages:
  • 17. Incentives for Salespeople: Commission Plan • greatest incentive, attracts high performing sales people • sales costs proportion to sales level • easy to understand/compute • disadvantages: • focus on sales, not customer relationship • variances in income among sales people • sales people may neglect other duties Pay-for-Performance and Financial Incentives | 12-17 Copyright © 2014 Pearson Canada Inc. All rights reserved. • advantages:
  • 18. Incentives for Salespeople: Combination Plan • advantages: • disadvantages: • may be a compromise • often confusing to calculate Pay-for-Performance and Financial Incentives | 12-18 Copyright © 2014 Pearson Canada Inc. All rights reserved. • earnings floor • allows compensation for administrative work
  • 19. Sales Compensation in the E-commerce Era • face-to-face sales reserved for high-volume, high-margin customers • focus on integration with online customer ordering and supporting rapid change • movement toward team-based sales results Pay-for-Performance and Financial Incentives | 12-19 Copyright © 2014 Pearson Canada Inc. All rights reserved. • sales people encouraged to strengthen relationships with customers
  • 20. Incentives for Other Managers Merit pay or merit raise • usually an ongoing increase to base pay • link to performance acts as motivator • success depends on validity of performance appraisal system Pay-for-Performance and Financial Incentives | 12-20 Copyright © 2014 Pearson Canada Inc. All rights reserved. • any salary increase awarded to an employee based on individual performance
  • 21. Incentives for Professionals • relatively high salaries; increases are not as motivating • often driven by high quality work and peer recognition • in addition to money, better equipment and support for publishing work is used Pay-for-Performance and Financial Incentives | 12-21 Copyright © 2014 Pearson Canada Inc. All rights reserved. • includes lawyers, doctors, economists, and engineers
  • 22. Organization-Wide Incentive Plans • profit-sharing plans • employee share purchase/stock ownership plan • a trust holds shares of company stock purchased for or issued to employees • the trust distributes the stock to employees as prescribed by the plan Pay-for-Performance and Financial Incentives | 12-22 Copyright © 2014 Pearson Canada Inc. All rights reserved. • most or all employees share in the company’s profits
  • 23. Organization-Wide Incentive Plans • gainsharing plans Copyright © 2014 Pearson Canada Inc. All rights reserved. • engages employees to achieve productivity objectives and share the gains • works in stable organizations with predictable goals and measures of performance Pay-for-Performance and Financial Incentives | 12-23
  • 24. Developing Effective Incentive Plans Considerations: • firms get what they pay for • pay is not a motivator • rewards rupture relationships • rewards may undermine responsiveness Pay-for-Performance and Financial Incentives | 12-24 Copyright © 2014 Pearson Canada Inc. All rights reserved. • performance pay cannot replace good management
  • 25. Effective Implementation of Incentive Plans 1. Pay for performance 3. Link incentives to measurable, valuable competencies 4. Match incentives to organizational culture 5. Keep group incentives clear and simple 6. Overcommunicate 7. The greatest incentive is the work itself Pay-for-Performance and Financial Incentives | 12-25 Copyright © 2014 Pearson Canada Inc. All rights reserved. 2. Link incentives to activities that engage employees
  • 26. Employee Recognition Programs • emerging as a critical component of incentive plans • movement toward recognition throughout the career • particularly effective in smaller entrepreneurial companies • effective in achieving improved attitudes, increased workloads, and productivity Pay-for-Performance and Financial Incentives | 12-26 Copyright © 2014 Pearson Canada Inc. All rights reserved. • traditionally, recognition has been for long service
  • 27. reserved. Copyright © 2014 Pearson Canada Inc. All rights reserved Common Recognition Rewards Pay-for-Performance and Financial Incentives | 12-27