Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Compensation and employee behaviour Part II

1,048 views

Published on

Compensation and employee behaviour Part II

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

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

×