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fundamentals of
Human Resource Management
Unit 08
COMPENSATION - Recognizing
Employee Contributions with Pay
What Do I Need to Know?
1. Discuss the connection between incentive
pay and employee performance.
2. Describe how organiza...
COMPENSATION
Financial Non-financial
Performance-
based
Membership-
based
Jobs Working
environment
• Multiple skills
• Gre...
Incentive Pay
• Incentive pay - forms of pay linked to an
employee’s performance as an individual,
group member, or organi...
Pay for Individual Performance
Piecework rates
Standard hour plans
Merit pay
Standard hour plans
Merit pay
Individual bonu...
Pay for Individual Performance:
Piecework Rates
Piecework Rate
• A wage based
on the
amount
workers
produce.
Straight
Piec...
Pay for Individual Performance:
Standard Hour Plans and Merit Pay
Standard Hour Plan
• An incentive plan that pays
workers...
Test Your Knowledge
• John works twisting pretzels in a pretzel
factory. Pablo works on IT systems integration
at a credit...
Pay for Individual Performance:
Sales Commissions
• Commissions - incentive pay calculated as a
percentage of sales.
• Som...
Pay for Group Performance
Gainsharing
BonusesBonuses
Team Awards
12‐15
Pay for Group Performance:
Gainsharing
• Gainsharing - group
incentive program that
measures improvements
in productivity ...
Pay for Group Performance:
Group Bonuses and Team Awards
Group Bonuses
• Bonuses for group
performance tend to be for
smal...
Pay for Organizational Performance:
Profit Sharing
• Profit sharing - incentive pay in which
payments are a percentage of ...
Figure 12.4: Types of Pay for
Organizational Performance
12‐21
Pay for Organizational Performance:
Stock Ownership
Stock Options
• Rights to buy a certain
number of shares of stock
at a...
Balanced Scorecard (BSC)
• Balanced scorecard - a
combination of
performance measures
directed toward the
company’s long‐ ...
Summary (continued)
• Organizations may recognize individual performance
through such incentives as piecework rates, stand...
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Transcript of "Unit08 recognizing employee contributions with pay 8"

  1. 1. fundamentals of Human Resource Management Unit 08 COMPENSATION - Recognizing Employee Contributions with Pay
  2. 2. What Do I Need to Know? 1. Discuss the connection between incentive pay and employee performance. 2. Describe how organizations recognize individual performance. 2. Describe how organizations recognize individual performance. 3. Identify ways to recognize group performance. 4. Explain how organizations link pay to their overall performance. 5. Describe how organizations combine incentive plans in a “balanced scorecard.” 12‐2
  3. 3. COMPENSATION Financial Non-financial Performance- based Membership- based Jobs Working environment • Multiple skills • Greater job freedom and discretion • Meaningful job • Feedback • Consistent • Piecework • Commission • Incentive plans • Performance bonuses • Merit pay plans • Multiple skills • Greater job freedom and discretion • Meaningful job • Feedback • Consistent • Protection programs • Pay for time not worked • Services and perquisites • Good colleagues • Preferred offices • Flexible working hour • Working from a distance • Impressive titles
  4. 4. Incentive Pay • Incentive pay - forms of pay linked to an employee’s performance as an individual, group member, or organization member. • Incentive pay is influential because the• Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes. • For incentive pay to motivate employees to contribute to the organization’s success, the pay plans must be well designed. 12‐4
  5. 5. Pay for Individual Performance Piecework rates Standard hour plans Merit pay Standard hour plans Merit pay Individual bonuses Sales commissions 12‐6
  6. 6. Pay for Individual Performance: Piecework Rates Piecework Rate • A wage based on the amount workers produce. Straight Piecework Plan • Incentive pay in which the employer pays the same rate per piece, no matter how much the Differential Piece Rates • Incentive pay in which the piece rate is higher when a greater • A wage based on the amount workers produce. • Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces • Incentive pay in which the piece rate is higher when a greater amount is produced. 12‐7
  7. 7. Pay for Individual Performance: Standard Hour Plans and Merit Pay Standard Hour Plan • An incentive plan that pays workers extra for work done in less than a preset “standard time.” Merit Pay • A system of linking pay increases to ratings on a performance scale. • They make use of a merit increase grid in less than a preset “standard time.” • These plans are much like piecework plans. • They encourage employees to work as fast as they can, but not necessarily to care about quality or service • They make use of a merit increase grid • The system gives best performers the biggest pay increases. 12‐9
  8. 8. Test Your Knowledge • John works twisting pretzels in a pretzel factory. Pablo works on IT systems integration at a credit card company. The best pay plans for these individuals would be ________ and _______, respectively. factory. Pablo works on IT systems integration at a credit card company. The best pay plans for these individuals would be ________ and _______, respectively. a) Merit pay, individual bonus b) Sales commissions; merit pay c) Piecework, Merit pay d) Individual bonus, sales commissions 12‐14
  9. 9. Pay for Individual Performance: Sales Commissions • Commissions - incentive pay calculated as a percentage of sales. • Some salespeople earn a commission in addition to a base salary. • Some salespeople earn a commission in addition to a base salary. • Straight commission plan - some salespeople earn only commissions. • Some salespeople earn no commissions at all, but a straight salary. 12‐13
  10. 10. Pay for Group Performance Gainsharing BonusesBonuses Team Awards 12‐15
  11. 11. Pay for Group Performance: Gainsharing • Gainsharing - group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each to employees. • Gainsharing addresses the challenge of identifying appropriate performance measures for complex jobs. • Gainsharing frees employees to determine effectiveness and distributes a portion of each to employees. • Gainsharing frees employees to determine how to improve their own and their group’s performance. 12‐16
  12. 12. Pay for Group Performance: Group Bonuses and Team Awards Group Bonuses • Bonuses for group performance tend to be for smaller work groups. • These bonuses reward the members of a group for Team Awards • Similar to group bonuses, but are more likely to use a broad range of performance measures:• These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output. broad range of performance measures: - Cost savings - Successful completion of a project - Meeting deadlines 12‐20
  13. 13. Pay for Organizational Performance: Profit Sharing • Profit sharing - incentive pay in which payments are a percentage of the organization’s profits and do not become part of the employees’ base salary. organization’s profits and do not become part of the employees’ base salary. • Profit sharing may encourage employees to think like owners. • Evidence is not clear whether profit sharing helps organizations perform better. 12‐22
  14. 14. Figure 12.4: Types of Pay for Organizational Performance 12‐21
  15. 15. Pay for Organizational Performance: Stock Ownership Stock Options • Rights to buy a certain number of shares of stock at a specified price. • Traditionally, stock options ESOPs • Employee Stock Ownership Plan (ESOP) - an arrangement in which the organization distributes shares of stock to all its • Traditionally, stock options have been granted to executives. • Some companies are trying to push eligibility for options further down the organization’s structure arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust. • This is the most common form of employee ownership. 12‐25
  16. 16. Balanced Scorecard (BSC) • Balanced scorecard - a combination of performance measures directed toward the company’s long‐ and short‐term goals and used as the basis for awarding incentive pay • The four categories of a balanced scorecard include: - financial - customer performance measures directed toward the company’s long‐ and short‐term goals and used as the basis for awarding incentive pay - customer - internal - learning and growth 12‐28
  17. 17. Summary (continued) • Organizations may recognize individual performance through such incentives as piecework rates, standard hour plans, merit pay, sales commissions, and bonuses for meeting individual performance objectives. • Organizations may recognize individual performance through such incentives as piecework rates, standard hour plans, merit pay, sales commissions, and bonuses for meeting individual performance objectives. • Common group incentives include gainsharing, bonuses, and team awards. • Incentives for meeting organizational objectives include profit sharing and stock ownership. 12‐35
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