Compensation and employee behaviour Part II


Published on

Compensation and employee behaviour Part II

Published in: Business, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Compensation and employee behaviour Part II

  1. 1. Compensation and Employee Behaviour: Part IIDr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor 1
  2. 2. Payment by Result (PBR)PBR incentive schemes are:➢Individual time saving – incentive paid for time saved in performing a task➢Measured Day work – a fixed amount paid for predetermined & agreed level of working➢Group and plant-wide incentives - employees in plant/organisation share bonus linked to output➢Commission - a Bonus paid linked to sales, reward pre-determined or percentage of total sales 2
  3. 3. Disadvantages of PBR schemesOperational inefficiencies affect incentiveQuality of work may be put on the line to achieve high levels of outputsQuality of working life may start to diminish, de- motivating employeesObscurity of payment arrangement, employees unable to comprehend their incentive schemes properly 3
  4. 4. Plant/Enterprise Based SchemesFocus on whole of organisationIt comprises schemes like Gain-sharing and Productivity bonus.PRP Individuals receive incentive as percentage increase to basic salary linked to performance 4
  5. 5. Modern Pay SchemesShare option schemes permit companies to grant share to directors and employees in tax- effective mannerThey are given opportunity to buy shares in their companies at a future date, but at the current price 5
  6. 6. Types of shares schemesEmployee share ownership plan (ESOP) - an employee benefit trust linked to share participation scheme.Trust receives contributions from company or borrows money and then buys shares in company and allocate to employeesAll employee share schemesExecutive share incentive scheme 6
  7. 7. AdvantagesThese are common and these are well understood by executive /employee and shareholdersIn some tax regimes, these enjoyed significant tax advantage 7
  8. 8. DisadvantagesThese are often unsuitable for well established companiesThese tend to use up shares more quickly than other types of scheme, creating dilution difficulties for smaller capital base company 8
  9. 9. Cash-Based awardsMost common profit-sharing arrangement - to pay employees cash bonus Paid as a proportion of annual profits 9
  10. 10. AdvantagesIncreases identification with the firm,Recognises that everyone contributes to creating profit. 10
  11. 11. DisadvantageDoes not provide an individual incentiveAmounts distributed are taken for granted 11
  12. 12. Individual Performance Related PayIndividuals receive incentive as increases to basic pay or cash bonuses, linked to performanceScope provided for a joined pay progression within the pay bracketHigh level of achievement may be rewarded by cash bonuses that are not consolidatedIndividuals are eligible for such bonuses when they have reached top of pay bracket and completely progressed along their learning curve 12
  13. 13. Advantagesacts as a monitorencourages and supports desired behaviourdelivers message that performance, competence and skill importantprovides means for defining and agreeing performance and competence expectationcan reinforce the organisation valuecan help to achieve culture change 13
  14. 14. Problems with Individual Performance Related PayExtent to which IPRP motivates questionableRequirements for success difficult to achieveMoney by itself not result in motivationCannot be assumed that money motivate everyone equallyFinancial rewards may motivate them who receive it but it may also de-motivate those who haven’tIPRP can create more dissatisfaction than satisfaction if they are perceived to be unfair 14
  15. 15. Problems with Individual Performance Related PayDepends on the existence of accurate and reliable methods of measuring performanceEmployees can be suspicious and may fear that performance standards will be raised continuouslyIPRP decisions depend on judgement of managers, in absence of reliable criteria could be unfairIPRP is based on assumption that performance completely under control of individuals but it can be affected by system in which they workIPRP proved difficult to manage 15
  16. 16. Rewarding Team PerformanceAim of team incentive :- to reinforce behaviours that lead and sustain effective teamwork- to encourage group endeavour and cooperation, rather than to concentrate only on individual performance- Research showed that most common method of providing team pay was to distribute bonus to team members.- Design for team pay will be contingent on requirements and circumstances of organisation, and these will always differ 16
  17. 17. Advantages of team payTeam pay can:➢Encourage team-working and co-operative behaviour➢Act as a lever for cultural change in the direction of quality and customer focus➢Enhance flexible working within teams and encourage multi-skilling➢Provides an incentive for group collectively to improve performance and team process➢Encourage less effective performers to improve in order to meet standards➢Serve as a means of developing self-managed or directed teams. 17
  18. 18. Disadvantages of team payEffectiveness depends on well defined teams, difficult to identify and they need to be motivated by a purely financial rewardTeam pay may seem inappropriate to individuals whose feelings of self-worth could be diminishedDistinguishing what individual team would be rewarded may be difficult to identify 18
  19. 19. Merit PayThese programs assume that employees’ compensation over time should be determined, at least in part, by differences in job performance 19
  20. 20. Who participates?Merit pay programs most often introduced in private sector ‘for profit’ of the economy rather than in public sector organisations 20
  21. 21. Elements of Merit PayManagers rely on objective as well as subjective performance indicators to determine whether an employee will receive a merit increase and the amount of increase warrantedEmployees must know that their efforts in meeting production quotas or quality standards will lead to pay raises 21
  22. 22. Elements of Merit PayCompanies that use merit programs must ensure that the funds needed to fulfil these promises to compensate employees are availableOrganisations should make adjustments to base pay according to changes in the cost of living or inflation before awarding merit pay raiseEffective performance appraisals drive effective merit pay programs 22
  23. 23. Thank you