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  1. 1. 1. Incentive: It is a system that links compensation & performance by rewarding performance instead of seniority or the hours worked 2. Gain sharing: It matches an improvement (gain) in performance with a distribution (sharing) of the benefit with the employee 3. Incentive & Gain sharing Issues Understanding: a. Purpose of Non Traditional Compensations: The incentive reinforces the performance on regular basis and results in more out put by the employee b. Eligibility & Coverage: Setting of a criteria the levels to give the non- traditional compensations to employee c. Pay out Standards: Determining a level of quality or attainment in context to the occasion /reason for the reward non-traditional compensation d. Administrations: Administration of an incentive system can be complex. The examples of few issues can be i. Standards have to be established ii. Unions often resists and prefer for seniority based rewards as they fear that increased productivity may cause:1. Layoff of their members 2. Management to raise the standards 4. Incentive Systems: a. Piece Work: Paid to the employee for each unit of output (e.g. a work paid for according to the number of units produced ) b. Production Bonuses: Paid to the employee for exceeding output goals above the standard. (e.g., saving time against the production of a unit such as 4 hrs work completed in 3 hrs) c. Commissions: Paid to the employee on an each unit/item sold based on % or flat rate (eg, property dealers system) d. Maturity Curves: Paid to the employee of selected job according to the established rate range when one employee touch/fall in the said range (e.g. book figure 14-2) e. Merit Raises: Paid to the employee after an evaluation of his/her performance f. Pay for knowledge/ Skills Compensation: Paid to the employee for his/her increased knowledge or the skill (eg, knowledge /skills more than required but relevant standards against a job) g. Non Monitory Incentives: These are non money incentives given to the employee (eg, Key chain, time off, vacations and certificates etc) h. Executive Incentives: Paid to the executives while balancing the short term results and long term performance and mostly tied with annual profits (eg, kinds involves for young & middle aged executives cash bonuses while for older, its building of retirement saving and may include purchase from firm’s stock or signing own compensation package) i. International Incentives: Paid to the foreign employee for attracting , retaining and motivating him/her in the firm (e.g. allowances or paying cost of house, transportation and taxes etc ) 5. Gain Sharing Approaches: a. Employee Ownership: Acquired through stock purchase plan b. Production Sharing Plans: Acquired through providing bonuses for predetermined levels of out put/production c. Profit Sharing Plans: Acquired through sharing the profit with the employee d. Cost Reduction Plans: Acquired through rewarding with something that is controllable e. Incentive Matrix: This matrix (book figure 14-4) shows the cash and non cash approaches for both individual & group incentives.