Incentive Pay and Team Based Pay by Dr. G C Mohanta


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Incentive Pay and Team Based Pay

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Incentive Pay and Team Based Pay by Dr. G C Mohanta

  1. 1. Incentive Pay & Team Based Pay Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt) Professor Al-Qurmoshi Institute of Business Management Hyderabad 1
  2. 2. Incentive Pay Incentive pay rewards employees for achieving defined goals. The company sets performance objectives at the beginning of the pay period and if these are achieved, employees receive a lump-sum payment. Incentive pay plans can be based on the performance of the individual, team, business unit or company. 2
  3. 3. Incentive Pay (Contd.) A lump sum payment (such as, sales commissions) is the traditional method . Usually the formula & relationship between performance and payment of the lump sum, are known beforehand. Another traditional method of rewarding performance is piece rates. Unless related to a reasonable time frame within which the production should be completed, such rates would not be related to performance. 3
  4. 4. 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 ➢Commission - a Bonus paid linked to sales, reward pre-determined or percentage of total sales 4
  5. 5. 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 5
  6. 6. Team-Based Pay Companies offer team-based incentive pay to encourage team members to work together effectively. Team-based incentives encourage collaboration and cooperation to achieve shared goals. Collaborative teams will structure the work to ensure that each team member is able to use his skills and abilities most effectively. For example, a team member with planning skills will organize the work flow while team members with technical skills will focus on completing the work. 6
  7. 7. Aim of Team Based Pay  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 based pay, was to distribute bonus to team members Design for team based pay will be contingent on requirements and circumstances of organisation, and these will always differ 7
  8. 8. Types of Team Based Pay Team Based Pay are of three types: Gain-sharing Profit-sharing Employee stock ownership plans (ESOPS). 8
  9. 9. Gain-sharing Gain-sharing refers to a compensation system which divides between the employer and employees the results of improved performance consequent upon the better use of human resources resulting in productivity gains. Sharing is according to an agreed, pre-determined formula. 9
  10. 10. Profit Sharing These schemes are linked to the profits of an enterprise, a part of which is paid as bonus to employees It may be a cash payment, or a deferred payment kept, for instance, in a special fund for a particular period. 10
  11. 11. Employee Stock ownership plan (ESOP) Employee stock 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 Stock 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 11
  12. 12. Advantages of Team Based 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 12
  13. 13.   Disadvantages of Team Based 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   13