Chapter 12 pay for performance and financial incentives final

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Chapter 12 pay for performance and financial incentives final

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  • Incentives for salespeople
    Sales compensation plans typically rely heavily on incentives in the form of sales commissions. However some salespeople get straight salaries, and most receive a combination of salary and commission
     
    The widespread use of incentives for salespeople is due to 3 factors: tradition, the unsupervised nature of most sales work, and the assumption that incentives are needed to motivate salespeople.
  • Salary plan
    In a salary plan, some companies pay sales people fixed salaries, (perhaps with occasional incentives in the form of bonuses sales contest prizes). Straight salaries particularly make sense when the main task involves prospecting (finding new clients) or when it mostly involves account servicing (such as executing product training programs for a customer’s sales force or participating in trade shows). This is why technology based industries like aerospace and transportation equipment tends to emphasize sales salary plans.
     
    There are advantages to paying salespeople on a straight salary. In this ways, Salespeople know in advance what their income will be, and the employer also have fixed, predictable sale force expenses. Straight salary makes it easier to switch territories or to reassign sales people and it can foster sales loyalty. Commissions tend to shift the salesperson’s emphasis to making the sale rather than to prospecting and cultivating long term customers.
    The main disadvantage is that pay isn’t proportionate to results. This can de-motivate potentially high performing salespeople.
     
    Commission plan
    Commission plans pay sales people for results, and only or results.(Pay directly for sale proportion: sale more get more) Under these plans salespeople have the greatest incentive. Commission plans tend to attract high performing salespeople who see that effort clearly produces rewards. Sales costs are proportionate to sales rather than fixed and the company’s fixed sales costs are thus lower. It’s a plan that’s easy to understand and compute.
     
    The commission plan also has drawbacks, Sales people tend to focus on making the sale and on high volume items, and may neglect non-selling duties like servicing small accounts, cultivating dedicated customers and pushing hard to sell items. Wide variations in pay may occur; this can lead to some feel the plan is inequitable.
     
    More serious is the fact that salespeople are encouraged to neglect other duties, like servicing small accounts. In addition, salesperson pay my be excessive in boom times and low in recessions
    Another potential drawback of commission only plans is that working without a financial safety net can be unsettling. If I go on vacation I lose money. If I’m sick, I lose money. If I’m not willing to drop everything on a moment’s notice to close with customer I lose money can’t see how anyone could stay in this job for long.
  • Combination plan
    Combination plans provide some of advantages of both straight salary and straight commission plans, and also some of their disadvantages. Salespeople have a floor to their earning. Furthermore, the company can direct its employees’ activities by detailing what services the salary component.
     
    However, the salary component is not tied to performance, and the employer is therefore trading away some incentive value. Combination plans also tend to become complicated, and misunderstandings can result. It might not be a simple” salary plus commission” plans.
    For example, there is a “commission + bonus” plan, salespeople are again paid primarily on the basis of commissions, but they are given a small bonus for directed activities, like selling slow-moving items.
     
     
     
    Sales compensation in the E-commerce Era
    The traditional product-based sale compensation focuses on the amount of product sold. But, what about the E-commerce Era?
    In the Internet age, an integrate team work together to position the company with prospects, make sales, and service account. For customer, they know what they want, or what they need. Therefore, rapid low-cost purchases can be made over the Internet.
    Sale incentive plans now need to encourage the sale force to focus on the customer, integrate with e-commerce, and support rapid change.
  • Chapter 12 pay for performance and financial incentives final

    1. 1. Pay for Performance and incentives  Definition: Incentives are financial rewards paid to workers whose production exceeds a predetermined standard  A gentleman called Frederick Taylor made the system of financial incentives popular in the late 1800, when he realized the pace at which the employees were working and the amount been produced.  We will be talking about pay for performance and incentives plans whether monetary or non-monetary for above standard work which is in line with the company’s objectives.  Plans which are geared towards different people within the organization  Developing and implementing effective incentive plans and the employees recognition programs
    2. 2.  Individual programs which are for employees who are paid more than their base salary to do work that is above their performance standard.  Informal incentives are given to worker for achievements that are not measured by a standard for example an award given for above and beyond customer service during the week.  Group incentive are the same as individual, however the reward is given to the group.  Organization-wide incentives are for everyone in the organization and the final one is  Non-monetary or performance rewarded without money but rather praise and expressions of appreciation.
    3. 3. • Piecework is when a worker is paid a sum called a piece rate for each unit he or she produces
    4. 4. Straight Piecework plan Guaranteed Piece work plan Advantages and Disadvantages of Piecework Incentive plans Advantages Disadvantages
    5. 5. Standard hour plan A plan by which a worker is paid a basic hourly rate plus an extra percentage of his/her base rate for production. Team or Group Incentive plans
    6. 6. Short-term Incentives:The annual bonus Eligibility i.e. Executive Manager Supervisor 80% 30% Up to 15%
    7. 7. Fund-size Determination (3 formulas)  10% net income after deducting 5% average capital invested in business  12.5% of the amount by which net income exceeds 6% of shareholders’ equity  12% net earnings after deducting 6% net capital  Individual Awards (individual performance, team performance, corporate performance or some combination of these) profit-sharing plan a true individual incentive bonus
    8. 8. Split-award method Individual performance+ company’s profit Individual performance Multiplier method Individual * corporate performance Zero
    9. 9. Long-term Incentives: an encouragement for the executives to stay with the company accumulating the capital based on the company’s long-term success. Stock options Performance share unit plans (profit or growth in earnings per share) A restricted share unit plan A deferred share unit plan  Relating strategy to executive compensation  Defining strategic context when designing a compensation plan  Creating package
    10. 10. Salary Plan Commission Plan Combination Plan Sales compensation in the E- commerce Era Factors Tradition the unsupervised nature of most sales work the assumption that incentives are needed to motivate salespeople.
    11. 11. Salary Plan Straight salary makes it simple to switch territories or to reassign salespeople, and it can foster loyalty among the sales staff. The main disadvantage is that pay isn’t proportionate to results.This can de- motivate potentially high performing salespeople. Commission Plan Pays salespeople for results, and only for results; thus, they tend to attract high- performing salespeople who see that effort clearly leads to reward. But Sales people tend to focus on making the sale and on high volume items, and may neglect non-selling duties like servicing small accounts, cultivating dedicated customers and pushing hard-to-sell items.
    12. 12. Combination Plan Most companies pay salespeople a combination of salary and commission, usually with sizable salary component. Commission plans give salespeople a floor to their earning, and still proved an incentive for superior performance. But they can become complicated, and misunderstandings can result. Sales compensation in the E-commerce Era For customer, they know what they want, or what they need.Therefore, rapid low-cost purchases can be made over the Internet. Face-to-face sales are now reserved for high-volume customers and higher-margin services.
    13. 13. Merit pay or a merit raises any wage increase that is awarded to an employee based on his or her individual performance in workplace. However, it is different from a bonus in that is usually represents a continuing increment. Merit pay has both advocates and is the project of much debate. Furthermore, Advocates claim that only pay or other rewards tied directly to performance can motivate improved performance. In addition, merit pay detractors present excellent reasons why merit pay can backfire. Incentives for Professional Employees As we can see from the textbook, professional employees are those whose work is to involve the application of learned information to the solution of the employer’s issues. For examples, they include lawyers, doctors, economists, and engineers. Professionals reach their positions through prolonged periods of formal study.
    14. 14.  Profit sharing plan A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings.  Employee stock ownership plan Employee stock ownership plans can be used to keep plan participants focused on company performance and share price appreciation.  Gain-sharing plans gain-sharing plan is best showed as a system of management in which an organization finds higher levels of performance through the involvement and participation of its individuals.  Gains and resulting payouts are self-funded based on savings generated by improved performance.  Gain-sharing commonly applies to a single site, or stand-alone organization.  Many plans often have a year-end reserve fund to account for deficit periods.  Employees often are involved with the design process.  A supporting employee involvement system is part of the plan in order to drive improvement initiatives.
    15. 15. ₪ Pay for performance ₪ Link incentives to events that make employees engage in the organization ₪ Link incentives to measurable competencies that the important to the organization ₪ Match incentives to culture of the organization ₪ Keep incentives clear and simple ₪ Over-communicate ₪ Remembering the work itself is the greatest incentive
    16. 16. ₪Lack of recognition is #1 cause of employee turnover ₪Cost-effective/Inexpensive ₪Personal & memorable ₪Improves employee’s attitude & productivity ₪Motivates high performers ₪Important communication tool
    17. 17. ₪ Most management employees receive short-term incentives ₪ Long-term incentives rewarded to top employees in management ₪ Salary plans can be effective but is not based on performance ₪ Commission plans motivate well since it is Performance equals rewards type ₪ Profit-sharing plans, purchase stock ownership plans, and gain sharing plans are organization- wide incentive plans ₪ Employee recognition plans becoming more common as an inexpensive way to keeping employees
    18. 18. THE END!Thanks for your time ^w^

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