1. Compensation and Employee
Behaviour: Part II
Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt)
Professor
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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
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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
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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
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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
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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
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7. Advantages
These are common and these are well understood by
executive /employee and shareholders
In some tax regimes, these enjoyed significant tax
advantage
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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
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9. Cash-Based awards
Most common profit-sharing arrangement - to pay
employees cash bonus
Paid as a proportion of annual profits
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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
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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
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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
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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
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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. 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. 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
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19. Merit Pay
These programs assume that employees’
compensation over time should be determined, at
least in part, by differences in job performance
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20. Who participates?
Merit pay programs most often introduced in private
sector ‘for profit’ of the economy rather than in
public sector organisations
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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
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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
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