This document provides an overview of different types of incentive compensation systems, dividing them into three main categories: individual incentives, group incentives, and organizational incentives. It describes several common individual incentive plans such as piece rate systems, differential rates, standard hourly rates, production bonuses, commissions, bonuses, awards, and merit pay. The key factors in determining the appropriate incentive system include whether performance is measurable at the individual or group level and ensuring clear links between employee performance and rewards.
This document discusses compensation and the factors that influence it. Compensation includes both financial compensation like wages and salaries as well as non-financial compensation like benefits and recognition programs. It is determined based on both internal factors like ability to pay, job requirements, and employee performance as well as external factors like cost of living, labor market conditions, government regulations, and technological changes. The goal of compensation is to attract, motivate, and retain qualified employees in a fair and competitive way.
The document discusses group members, definitions of wages and salaries, wage and salary administration, reasons for studying it, the role of human resources in payment, principles, objectives, and elements affecting wage/salary levels. It defines wages as paid to blue-collar employees and salaries to white-collar employees. Wage and salary administration involves developing, implementing, and maintaining a pay system. Objectives include attracting qualified employees, controlling payroll costs, motivating performance, and maintaining fairness and equity.
The document discusses various aspects of wage and salary administration. It outlines objectives like recruiting employees and controlling payroll costs. It discusses principles like external equity, job evaluation, and maintaining competitiveness. Factors that determine wage structures include cost of living, productivity, and prevailing wages. Different types of wages like minimum, fair, and living wages are defined. Advantages and disadvantages of time wages and piece wages are provided. Guidelines for effective incentive plans emphasize linking pay to performance and clear communication. Key labor laws governing wages in India like the Minimum Wages Act, Payment of Wages Act, and Payment of Bonus Act are also summarized.
This document discusses labour cost control and labour cost management. It defines direct and indirect labour and explains different types of wages payment systems like time wage, piece wage and incentive wage systems. It also discusses factors for labour cost control like labour records, control of production methods and labour cost analysis. Methods to measure and control labour turnover are provided. The roles of different departments in labour cost management are outlined.
This document discusses labour and labour turnover. It defines labour as human efforts used to convert materials into finished products or perform jobs. Labour cost refers to payments made to labour and is a significant production cost. Labour can be direct, directly involved in production, or indirect, providing supporting roles. Labour turnover is measured as a percentage and indicates stability, with a high rate showing instability. Causes of turnover include personal reasons, unavoidable issues, and avoidable workplace factors like lack of opportunities, training, or benefits. Turnover is measured using separation, replacement, or flux methods involving numbers of employees leaving or joining.
Wage components - compensation management - Manu Melwin Joymanumelwin
The salaried employees in high pay positions are not likely to receive additional pay for the hours in excess of 40 per week. However, employees with low salaries are entitled to overtime pay.
This document discusses compensation and the factors that influence it. Compensation includes both financial compensation like wages and salaries as well as non-financial compensation like benefits and recognition programs. It is determined based on both internal factors like ability to pay, job requirements, and employee performance as well as external factors like cost of living, labor market conditions, government regulations, and technological changes. The goal of compensation is to attract, motivate, and retain qualified employees in a fair and competitive way.
The document discusses group members, definitions of wages and salaries, wage and salary administration, reasons for studying it, the role of human resources in payment, principles, objectives, and elements affecting wage/salary levels. It defines wages as paid to blue-collar employees and salaries to white-collar employees. Wage and salary administration involves developing, implementing, and maintaining a pay system. Objectives include attracting qualified employees, controlling payroll costs, motivating performance, and maintaining fairness and equity.
The document discusses various aspects of wage and salary administration. It outlines objectives like recruiting employees and controlling payroll costs. It discusses principles like external equity, job evaluation, and maintaining competitiveness. Factors that determine wage structures include cost of living, productivity, and prevailing wages. Different types of wages like minimum, fair, and living wages are defined. Advantages and disadvantages of time wages and piece wages are provided. Guidelines for effective incentive plans emphasize linking pay to performance and clear communication. Key labor laws governing wages in India like the Minimum Wages Act, Payment of Wages Act, and Payment of Bonus Act are also summarized.
This document discusses labour cost control and labour cost management. It defines direct and indirect labour and explains different types of wages payment systems like time wage, piece wage and incentive wage systems. It also discusses factors for labour cost control like labour records, control of production methods and labour cost analysis. Methods to measure and control labour turnover are provided. The roles of different departments in labour cost management are outlined.
This document discusses labour and labour turnover. It defines labour as human efforts used to convert materials into finished products or perform jobs. Labour cost refers to payments made to labour and is a significant production cost. Labour can be direct, directly involved in production, or indirect, providing supporting roles. Labour turnover is measured as a percentage and indicates stability, with a high rate showing instability. Causes of turnover include personal reasons, unavoidable issues, and avoidable workplace factors like lack of opportunities, training, or benefits. Turnover is measured using separation, replacement, or flux methods involving numbers of employees leaving or joining.
Wage components - compensation management - Manu Melwin Joymanumelwin
The salaried employees in high pay positions are not likely to receive additional pay for the hours in excess of 40 per week. However, employees with low salaries are entitled to overtime pay.
The document discusses incentive payment plans used in industries. It provides details on the objectives, features, types, and examples of various incentive schemes including:
- Standard hour plans that pay a basic hourly rate plus incentives for completing work faster than the standard time.
- Halsey and Rowan plans that pay bonuses based on a percentage of time saved compared to the standard.
- Piece rate plans that pay workers per unit of output completed.
The document outlines the prerequisites and safeguards needed for effective incentive systems, and notes industries where incentive schemes may be difficult to apply.
Employee provident fund and miscellaneous act, 1952NeerajUpreti2
Overview, Applicability, Contribution by Employer and Employees', Benefits and Registration process of Employee provident fund and miscellaneous act, 1952
This document discusses wage policy and compensation differentials within and between industries. It begins by defining key concepts like minimum wage, living wage, and fair wage. It then discusses factors that influence wages both externally like labor markets and cost of living, and internally like job evaluation and employee performance. Different wage payment systems like piece rate and time rate are also covered. The document also discusses principles of wage administration, relevant wage laws in India, and recommendations of wage policy committees. It defines compensation and differentiates between direct and indirect compensation. Finally, it discusses reasons for compensation differentials both between industries and within the same industry based on factors like experience, skills, training, work conditions and department.
Labor turnover refers to the proportion of a workforce that leaves a company during a given period. It can be calculated using various methods that take into account the number of employees who separated from the company and/or were replaced during the period divided by the average number of employees. Higher labor turnover means more employees are leaving and being replaced, while lower turnover means fewer employees are leaving. High turnover can negatively impact a company through increased costs, lower productivity, and quality issues. While some turnover cannot be avoided, companies should aim to minimize it by implementing measures such as competitive pay and benefits, good working conditions, training programs, promotion opportunities, and addressing employee grievances.
Compensation Management importance and factors influencing compensationalisdq550
Compensation is what employees receive in exchange for their work, including both monetary and non-monetary benefits. It is important for both motivating employees and reducing costs for organizations. Many factors influence compensation, including external factors like the labor market, cost of living, unions, and laws, as well as internal factors like the organization's compensation policies, ability to pay, job analyses, and individual employee performance. Effective compensation systems can help organizations attract, retain, and motivate talented staff.
The document discusses different types of incentive plans used to motivate workers, including individual and group plans. Individual plans can be time-based or production-based, setting standards for time to complete tasks or units of output. Group plans reward cooperation and teamwork. Specific incentive plans discussed include Halsey, Rowan, Emerson, Bedeaux, Taylor, Merrick, and Gantt plans, outlining their mechanics for determining wages based on standards and incentives for efficiency.
Compensation includes base pay, variable pay, and benefits that employees receive in exchange for their contributions. The objectives of compensation planning are to attract, retain, and ensure fairness or equity for employees. Equity can be achieved through job evaluation, salary surveys, grouping similar jobs into pay grades, pricing each grade, and fine-tuning pay rates. Components of a pay structure include basic wages, dearness allowance, and statutory benefits. Wage administration aims to establish fair pay while attracting staff and controlling costs through flexible, job-based plans that are responsive to changing conditions. Key factors that influence compensation are jobs needs, ability to pay, cost of living, market rates, productivity, and regulations. India's wage policy focuses on
This document defines and discusses fringe benefits provided to employees. It notes that fringe benefits are non-monetary benefits given to employees in addition to their salary, such as a company car or health insurance. The document outlines several examples of fringe benefits and discusses the objectives, needs, importance, principles, types, advantages, and disadvantages of providing fringe benefits to employees.
This document discusses compensation management and wage determination. It covers topics such as objectives of compensation, types of compensation (base compensation like wages and salaries vs. supplementary compensation like benefits), factors that influence wages, and methods of wage fixation. The key methods of wage fixation discussed are collective bargaining, wage boards, job evaluation, pay commissions, and arbitration/adjudication.
This document discusses various wage payment methods and incentive plans used in organizations. It describes time-based wage systems that pay employees based on time worked, and piece-rate systems that pay based on output. It also discusses individual and group incentive plans that provide bonuses for efficient work. Some key incentive plans covered are Halsey, Merrick Multiple Piece Rate, and Gainn Task & Bonus plans. The document stresses that no single method is best and combinations can provide security and incentives for high performance.
The document discusses compensation and benefits practices at various organizations. It provides an overview of compensation systems, including direct and indirect components. It also covers the needs for compensation, designing equitable compensation considering internal and external equity, and linking pay to performance. The document concludes by giving examples of compensation and benefits plans of companies like Google, Procter & Gamble, Apollo Hospitals, and Wipro.
This document discusses wages and salary administration. It covers developing a pay system through job evaluation and market surveys, establishing pay structures, and administering individual pay adjustments while monitoring the system. It also discusses factors affecting compensation levels and the purpose of wages. Principles of compensation administration and different types of compensation like direct, indirect, and total compensation are defined.
1. Wage differentials refer to differences in pay between jobs based on skills required, responsibilities, working conditions, and other factors.
2. There are several types of wage differentials including occupational differentials based on skills, inter-firm differentials based on employer qualities, and regional differentials based on location.
3. Executive compensation packages for top managers include salaries, bonuses, stock options, benefits, and perks that are tailored differently than compensation for other employees and aim to attract, retain, and motivate high-level executives.
This document outlines a compensation and incentive plan. It defines compensation and incentives, and discusses the objectives of having such a plan, including attracting and retaining employees, increasing productivity and motivation. It describes different types of individual, group and organizational incentive plans and the advantages and disadvantages of each. Finally, it provides guidance on what makes an effective incentive plan, including clear communication, performance measures linked to objectives, and ensuring the plan is adequate, fair and flexible.
This document presents an overview of several types of incentive plans, including the Halsey Premium Plan, Halsey-Weir Premium Plan, Rowan Premium Plan, and Bedeaux Plan. The Halsey Premium Plan pays a bonus based on 50% of time saved. The Halsey-Weir Plan pays a bonus of 33.33% of time saved. The Rowan Plan calculates bonus as a percentage of time saved relative to allowed time. The Bedeaux Plan expresses work in standard time units and pays bonus on units completed beyond standard.
ESOP (Employee Stock Ownership Plan) allows employees to buy company stock at fair value, making them owners. Introduced in the 1950s, ESOP trusts established by companies distribute tax-deductible contributions to employee accounts. Employees must work 1 year or 1000 hours to be eligible. After 10 years and age 55, employees can diversify up to 25% of their account. While building employee ownership and retention, ESOPs also face challenges like share dilution and decreased attractiveness if stock value declines. Overall, ESOPs are seen as beneficial for rewarding, retaining, and attracting talent through ownership.
This document discusses various time-based and productivity-based incentive plans for workers. It describes incentive plans like the Halsey Plan, Rowan Plan, Bedaux Plan, Emerson's Efficiency Plan, Gantt's Task and Bonus Scheme, and Taylor Incentive Plan. These plans provide bonuses or higher wages to workers for completing tasks faster than a preset standard time or at a higher productivity level than standard. The plans aim to motivate workers by rewarding those who are more efficient. Formulas for calculating wages under each plan are provided with examples. Advantages and disadvantages of each plan are also summarized.
This document provides an overview of compensation management. It discusses that compensation includes both direct monetary benefits like salary as well as indirect non-monetary benefits. An effective compensation system is designed based on factors like job analysis and market surveys. It is an important part of human resource management that helps motivate employees and improve organizational performance. The various components, types, and importance of compensation management are outlined.
This document discusses various types of pay-for-performance plans including merit pay, variable pay, individual and group incentives, and long-term incentives. Merit pay rewards higher performers with additional pay based on their performance rating. Variable pay ties compensation to measurable performance factors. Individual incentives include piece-rate plans, standard hour plans, and plans that set multiple piece rates based on production levels. Group incentives like profit-sharing reward employee groups when organizational goals are met. Long-term incentives focus on long-term value creation through options, restricted stock, and plans with performance acceleration.
Installation of a costing system is an investment rather than an expense because the rewards are greater than the costs. The costing system should be designed to meet the specific needs of the business, not the other way around. There are general considerations for installing a costing system, such as objectives, area of operation, data collection, cost records, and control methods. Specific considerations include business size and nature, products, organization structure, and functional studies. Successful implementation requires top management support, staff cooperation, adequate training, and managing costs of installation and operation. The system should be simple, flexible, minimally disruptive, and gradually introduced to build confidence.
The document discusses different types of pay-for-performance plans including shop-floor incentives, sales force incentives, executive pay, and team-based pay. It outlines the importance of designing pay plans that support corporate objectives, are fair and equitable, and comply with laws. Different types of team-based pay plans like profit-sharing, gain-sharing, and employee stock ownership plans are described as ways to incentivize and reward employee performance.
The document discusses performance measurement and compensation management. It covers several key points:
1. Companies should use a balanced scorecard approach and multiple measures to avoid short-term thinking. Measures should reflect strategy, show cause-and-effect relationships, and provide a broad view of performance.
2. Compensation should be linked to measures and strategy to motivate employee behavior that benefits long-term success. Both financial and non-financial measures are important.
3. Regular review of measures and results is needed to ensure alignment with evolving strategy and identify areas for improvement. Interactive controls also help organizations adapt strategy based on new information.
The document discusses incentive payment plans used in industries. It provides details on the objectives, features, types, and examples of various incentive schemes including:
- Standard hour plans that pay a basic hourly rate plus incentives for completing work faster than the standard time.
- Halsey and Rowan plans that pay bonuses based on a percentage of time saved compared to the standard.
- Piece rate plans that pay workers per unit of output completed.
The document outlines the prerequisites and safeguards needed for effective incentive systems, and notes industries where incentive schemes may be difficult to apply.
Employee provident fund and miscellaneous act, 1952NeerajUpreti2
Overview, Applicability, Contribution by Employer and Employees', Benefits and Registration process of Employee provident fund and miscellaneous act, 1952
This document discusses wage policy and compensation differentials within and between industries. It begins by defining key concepts like minimum wage, living wage, and fair wage. It then discusses factors that influence wages both externally like labor markets and cost of living, and internally like job evaluation and employee performance. Different wage payment systems like piece rate and time rate are also covered. The document also discusses principles of wage administration, relevant wage laws in India, and recommendations of wage policy committees. It defines compensation and differentiates between direct and indirect compensation. Finally, it discusses reasons for compensation differentials both between industries and within the same industry based on factors like experience, skills, training, work conditions and department.
Labor turnover refers to the proportion of a workforce that leaves a company during a given period. It can be calculated using various methods that take into account the number of employees who separated from the company and/or were replaced during the period divided by the average number of employees. Higher labor turnover means more employees are leaving and being replaced, while lower turnover means fewer employees are leaving. High turnover can negatively impact a company through increased costs, lower productivity, and quality issues. While some turnover cannot be avoided, companies should aim to minimize it by implementing measures such as competitive pay and benefits, good working conditions, training programs, promotion opportunities, and addressing employee grievances.
Compensation Management importance and factors influencing compensationalisdq550
Compensation is what employees receive in exchange for their work, including both monetary and non-monetary benefits. It is important for both motivating employees and reducing costs for organizations. Many factors influence compensation, including external factors like the labor market, cost of living, unions, and laws, as well as internal factors like the organization's compensation policies, ability to pay, job analyses, and individual employee performance. Effective compensation systems can help organizations attract, retain, and motivate talented staff.
The document discusses different types of incentive plans used to motivate workers, including individual and group plans. Individual plans can be time-based or production-based, setting standards for time to complete tasks or units of output. Group plans reward cooperation and teamwork. Specific incentive plans discussed include Halsey, Rowan, Emerson, Bedeaux, Taylor, Merrick, and Gantt plans, outlining their mechanics for determining wages based on standards and incentives for efficiency.
Compensation includes base pay, variable pay, and benefits that employees receive in exchange for their contributions. The objectives of compensation planning are to attract, retain, and ensure fairness or equity for employees. Equity can be achieved through job evaluation, salary surveys, grouping similar jobs into pay grades, pricing each grade, and fine-tuning pay rates. Components of a pay structure include basic wages, dearness allowance, and statutory benefits. Wage administration aims to establish fair pay while attracting staff and controlling costs through flexible, job-based plans that are responsive to changing conditions. Key factors that influence compensation are jobs needs, ability to pay, cost of living, market rates, productivity, and regulations. India's wage policy focuses on
This document defines and discusses fringe benefits provided to employees. It notes that fringe benefits are non-monetary benefits given to employees in addition to their salary, such as a company car or health insurance. The document outlines several examples of fringe benefits and discusses the objectives, needs, importance, principles, types, advantages, and disadvantages of providing fringe benefits to employees.
This document discusses compensation management and wage determination. It covers topics such as objectives of compensation, types of compensation (base compensation like wages and salaries vs. supplementary compensation like benefits), factors that influence wages, and methods of wage fixation. The key methods of wage fixation discussed are collective bargaining, wage boards, job evaluation, pay commissions, and arbitration/adjudication.
This document discusses various wage payment methods and incentive plans used in organizations. It describes time-based wage systems that pay employees based on time worked, and piece-rate systems that pay based on output. It also discusses individual and group incentive plans that provide bonuses for efficient work. Some key incentive plans covered are Halsey, Merrick Multiple Piece Rate, and Gainn Task & Bonus plans. The document stresses that no single method is best and combinations can provide security and incentives for high performance.
The document discusses compensation and benefits practices at various organizations. It provides an overview of compensation systems, including direct and indirect components. It also covers the needs for compensation, designing equitable compensation considering internal and external equity, and linking pay to performance. The document concludes by giving examples of compensation and benefits plans of companies like Google, Procter & Gamble, Apollo Hospitals, and Wipro.
This document discusses wages and salary administration. It covers developing a pay system through job evaluation and market surveys, establishing pay structures, and administering individual pay adjustments while monitoring the system. It also discusses factors affecting compensation levels and the purpose of wages. Principles of compensation administration and different types of compensation like direct, indirect, and total compensation are defined.
1. Wage differentials refer to differences in pay between jobs based on skills required, responsibilities, working conditions, and other factors.
2. There are several types of wage differentials including occupational differentials based on skills, inter-firm differentials based on employer qualities, and regional differentials based on location.
3. Executive compensation packages for top managers include salaries, bonuses, stock options, benefits, and perks that are tailored differently than compensation for other employees and aim to attract, retain, and motivate high-level executives.
This document outlines a compensation and incentive plan. It defines compensation and incentives, and discusses the objectives of having such a plan, including attracting and retaining employees, increasing productivity and motivation. It describes different types of individual, group and organizational incentive plans and the advantages and disadvantages of each. Finally, it provides guidance on what makes an effective incentive plan, including clear communication, performance measures linked to objectives, and ensuring the plan is adequate, fair and flexible.
This document presents an overview of several types of incentive plans, including the Halsey Premium Plan, Halsey-Weir Premium Plan, Rowan Premium Plan, and Bedeaux Plan. The Halsey Premium Plan pays a bonus based on 50% of time saved. The Halsey-Weir Plan pays a bonus of 33.33% of time saved. The Rowan Plan calculates bonus as a percentage of time saved relative to allowed time. The Bedeaux Plan expresses work in standard time units and pays bonus on units completed beyond standard.
ESOP (Employee Stock Ownership Plan) allows employees to buy company stock at fair value, making them owners. Introduced in the 1950s, ESOP trusts established by companies distribute tax-deductible contributions to employee accounts. Employees must work 1 year or 1000 hours to be eligible. After 10 years and age 55, employees can diversify up to 25% of their account. While building employee ownership and retention, ESOPs also face challenges like share dilution and decreased attractiveness if stock value declines. Overall, ESOPs are seen as beneficial for rewarding, retaining, and attracting talent through ownership.
This document discusses various time-based and productivity-based incentive plans for workers. It describes incentive plans like the Halsey Plan, Rowan Plan, Bedaux Plan, Emerson's Efficiency Plan, Gantt's Task and Bonus Scheme, and Taylor Incentive Plan. These plans provide bonuses or higher wages to workers for completing tasks faster than a preset standard time or at a higher productivity level than standard. The plans aim to motivate workers by rewarding those who are more efficient. Formulas for calculating wages under each plan are provided with examples. Advantages and disadvantages of each plan are also summarized.
This document provides an overview of compensation management. It discusses that compensation includes both direct monetary benefits like salary as well as indirect non-monetary benefits. An effective compensation system is designed based on factors like job analysis and market surveys. It is an important part of human resource management that helps motivate employees and improve organizational performance. The various components, types, and importance of compensation management are outlined.
This document discusses various types of pay-for-performance plans including merit pay, variable pay, individual and group incentives, and long-term incentives. Merit pay rewards higher performers with additional pay based on their performance rating. Variable pay ties compensation to measurable performance factors. Individual incentives include piece-rate plans, standard hour plans, and plans that set multiple piece rates based on production levels. Group incentives like profit-sharing reward employee groups when organizational goals are met. Long-term incentives focus on long-term value creation through options, restricted stock, and plans with performance acceleration.
Installation of a costing system is an investment rather than an expense because the rewards are greater than the costs. The costing system should be designed to meet the specific needs of the business, not the other way around. There are general considerations for installing a costing system, such as objectives, area of operation, data collection, cost records, and control methods. Specific considerations include business size and nature, products, organization structure, and functional studies. Successful implementation requires top management support, staff cooperation, adequate training, and managing costs of installation and operation. The system should be simple, flexible, minimally disruptive, and gradually introduced to build confidence.
The document discusses different types of pay-for-performance plans including shop-floor incentives, sales force incentives, executive pay, and team-based pay. It outlines the importance of designing pay plans that support corporate objectives, are fair and equitable, and comply with laws. Different types of team-based pay plans like profit-sharing, gain-sharing, and employee stock ownership plans are described as ways to incentivize and reward employee performance.
The document discusses performance measurement and compensation management. It covers several key points:
1. Companies should use a balanced scorecard approach and multiple measures to avoid short-term thinking. Measures should reflect strategy, show cause-and-effect relationships, and provide a broad view of performance.
2. Compensation should be linked to measures and strategy to motivate employee behavior that benefits long-term success. Both financial and non-financial measures are important.
3. Regular review of measures and results is needed to ensure alignment with evolving strategy and identify areas for improvement. Interactive controls also help organizations adapt strategy based on new information.
Established in 2015, by Mr. Ashish Jain 2015, Learning Session is a top-notch institute for Bank Exam Preparation in Ludhiana. We specialize in providing JAIIB Exams, CAIIB Exams, Promotion exams banking in India and IIBF Certification Exams through various platforms like online crash courses and Learning Session’s Android App.
The document discusses key aspects of developing compensation plans, including identifying appropriate compensation policies, establishing internal pay equity, and understanding different approaches such as job-based versus skill-based compensation. It also outlines the components of compensation systems, types of compensation, total compensation packages, criteria for developing plans, and tools for setting compensation.
This document discusses various aspects of management pay including:
1) Managing labor costs through analyzing value-added returns, controlling average cash compensation from top-down and bottom-up approaches, and using embedded controls like salary ranges.
2) The importance of communication in shaping employee understanding of the pay system through both indirect means like paychecks and direct formal sessions.
3) How compensation acts as a change agent by realigning strategy during organizational restructuring to lead or follow strategic changes.
The document discusses the objectives and principles of compensation. It aims to acquire qualified personnel, retain current employees, reward desired behaviors, control costs, and comply with legal regulations. There are several classifications of compensation objectives including equity, efficiency, macroeconomic stability, and optimal labor allocation. Compensation is formulated based on external market rates, individual worth, and salary. Reward programs are designed to motivate employees and support business goals, while recognition programs provide psychological benefits. Merit pay increases should be separated from reward programs to avoid entitlement and emphasize excellence over competency. Effective reward programs clearly define goals, desired behaviors, measurements, appropriate rewards, and ensure communication to employees. Common types of reward programs include variable pay, bonuses, profit sharing, and gain
Mba ii hrm u-3.5 incentives and employee benefitsRai University
This document discusses employee incentives and benefits. It outlines characteristics of desirable wage plans, such as being simple, beneficial, equitable and incentive-oriented. It describes different pay for performance systems including merit pay, variable pay, skill-based pay and competency-based pay. It also discusses time wage and piece rate payment systems, and types of incentive plans like individual, group and organization-wide incentives. Fringe benefits are also covered, outlining their need, types, and objectives.
This document discusses concepts related to pay, productivity, and compensation in the workplace. It defines key terms like employment contracts, salary, and productivity. It explains the importance of pay to employers, employees, and governments. It also discusses different compensation schemes and how varying levels of pay can impact productivity. Motivation techniques are explored, along with issues that can arise when compensation is not properly implemented. Different payment systems like piecework and time wages are analyzed in terms of their impacts on productivity. The sequencing of pay over a career is also covered, along with the advantages of delayed compensation plans and constraints that must be considered.
The document discusses pay for performance (PFP) systems. It defines PFP and explains that PFP systems tie an employee's pay more closely to their performance. The document outlines several key determinants of effective PFP systems, including measurable and controllable performance metrics. It also discusses common problems with PFP programs, such as poor performance evaluations. When designing a PFP system, an organization should consider who to include, how to measure performance, and which incentives to use. Individual and group incentives are discussed.
This document discusses different types of variable pay plans that link employee compensation to performance. It provides data on the increasing prevalence of various plans such as individual incentive plans, team awards, and stock option plans. The greater interest in variable pay is attributed to increasing competition requiring cost cuts and productivity gains, as well as the need for agility in today's fast-paced business environment. The document also summarizes several individual and group incentive plan types, outlining their advantages, disadvantages, and examples.
Total rewards is a concept that describes all the tools available to an employer that may be used to attract, motivate, retains and engages the employee.
Total rewards may also refer to the function or department within HR that handles compensation and benefits, or the combined intrinsic and extrinsic rewards (or value) that an employee perceives.
The document discusses compensation practices in Bangladesh. It covers key topics like defining compensation, challenges that affect compensation, objectives of compensation management, components of compensation, and how to establish pay rates through conducting salary surveys, job evaluation, grouping jobs into pay grades, and setting wage curves. The presentation addresses current issues in compensation management and details the various contents of a compensation system, including wages/salaries, incentives, and benefits.
This document summarizes topics covered in a compensation management module, including management strategy, reward policies, pay reviews, and other compensation processes. It discusses developing a reward strategy to motivate employees and attract talent. It also outlines monetary and non-monetary reward policies, procedures for conducting pay reviews, job grading, pay rate fixation, controlling payroll costs, and evaluating reward programs. Different types of direct and indirect compensation such as base pay, commissions, bonuses, stock options, and allowances are also defined.
Chapter 10 Pay for performance assignment.pdfNano281608
This document discusses different types of variable pay plans and incentive plans. It provides examples of individual incentive plans like merit pay, lump-sum bonuses, and spot awards. It also discusses group incentive plans like gain-sharing plans, which link pay to productivity savings, and profit-sharing plans, which link pay to financial measures. Both individual and group plans have advantages like raising productivity, but also disadvantages like increased conflict or reduced information sharing. The document provides details on the design and implementation of various incentive plan models.
This document provides an overview of incentive theory and common incentive plans used in industry. It discusses the purpose of incentives to motivate workers and increase productivity. Both positive and negative incentives are described, with an emphasis on the advantages of various types of positive financial incentives over negative incentives. Individual and group incentive plans are compared. Key aspects of developing an effective incentive plan like job evaluation, work measurement, trade union acceptance and application scope are covered. Finally, some standard incentive plans like piece work, standard hour and Halsey premium plans are explained with examples. The document aims to provide guidance on incentive plan design and implementation for productivity improvement.
The document discusses key practices for talent retention, including recruiting the right people, improving manager skills, giving frequent feedback, empowering career planning, enabling talent mobility, and continuously measuring retention strategies. It argues that technology-based tools can help implement these practices by automating recruitment, providing data-driven talent management, setting clear employee goals, allowing self-service career planning, promoting internal opportunities, and analyzing retention metrics. When companies invest in talent management technologies to select and develop the best employees, they can boost retention and business success.
workmens compensation - gives insight on HR policiesjalajaAnilkumar
The Employees Compensation Act was amended in 1923 to expand coverage and increase compensation amounts. Key changes include replacing "workman" with "employee", adding clerks as covered workers, increasing minimum compensation for death to Rs. 1,20,000 and permanent disability to Rs. 1,40,000, and raising the maximum wage limit to Rs. 8,000 per month for compensation calculations. The Act provides compensation for work-related injuries, disabilities and diseases in a quick manner without needing civil proceedings.
This document discusses various considerations for designing a base pay structure, including establishing pay policy guidelines, designing pay grades, determining pay rates across grades, and displaying internal and external job data. Key decisions include setting minimum and maximum pay levels, progression between grades, whether to use one or multiple pay structures, and how to account for different occupational groups. The goal is to develop a pay structure that attracts, retains, and motivates employees based on competitive market rates and internal equity.
Work Life Balance and Demographic Variables.pdfjalajaAnilkumar
This document summarizes a presentation on work-life balance among female doctors. It discusses the research questions, literature review, gaps found, methodology, results, and conclusions. The presentation analyzed how demographic factors like marital status, family type, and age influence work-life balance. It was found that married female doctors and those in obstetrics/gynecology faced more difficulties balancing work and life. The document suggests organizations implement family-friendly policies, childcare, and a shift system to help employees balance their responsibilities.
Cybersecurity involves defending computers and networks from malicious attacks. Key issues include unprecedented attacks, cyber espionage, data theft, ransomware targeting IoT devices, mobile device attacks, and phishing. Challenges to cybersecurity are staying ahead of threats through cloud security, addressing how AI enables attacks and prevention, and risks from social engineering, deep fakes, and smart contract hacking. Regular security audits, awareness training, strong unique passwords, antivirus software, backups, and encryption can help brace against cyberthreats as criminals pursue new exploits.
Work Life Balance and Demographic Variables.pptxjalajaAnilkumar
This document summarizes a presentation on a study about work life balance and demographic variables among female doctors. The presentation includes an introduction on work life balance, research questions on factors influencing work life imbalance among female doctors, a literature review, identified gaps in previous research, the study's research methodology using surveys of 105 female doctors, results of the study finding that married female doctors and those in certain specializations face greater difficulties balancing work and life, suggestions for organizations to adopt family-friendly policies and provide childcare support, limitations of the study and areas for further research.
Google announced a major restructuring in August 2019 that resulted in thousands of employees being laid off. This was due to a shift in focus from core products to new areas of growth, and pressure from the government to reduce its monopoly. While proponents argue it was a strategic move to ensure viability, critics say it shows a lack of strategic vision and management ability. The layoffs significantly impacted employees and morale.
Strategic human resource management (SHRM) involves aligning human resource strategies and practices with the overall business strategy to improve business performance and develop a culture of innovation, flexibility and competitive advantage. Key aspects of SHRM include attracting and retaining talent, understanding organizational goals, partnering across departments, and utilizing HR to strengthen other business functions. The goals of the HR department should support and reflect the overall goals of the organization.
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(𝐓𝐋𝐄 𝟏𝟎𝟎) (𝐋𝐞𝐬𝐬𝐨𝐧 𝟏)-𝐏𝐫𝐞𝐥𝐢𝐦𝐬
𝐃𝐢𝐬𝐜𝐮𝐬𝐬 𝐭𝐡𝐞 𝐄𝐏𝐏 𝐂𝐮𝐫𝐫𝐢𝐜𝐮𝐥𝐮𝐦 𝐢𝐧 𝐭𝐡𝐞 𝐏𝐡𝐢𝐥𝐢𝐩𝐩𝐢𝐧𝐞𝐬:
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1. Principal Investigator
Co-Principal Investigator
Paper Coordinator
Content Writer
Prof. S P Bansal
Vice Chancellor
Maharaja Agrasen University, Baddi
Prof YoginderVerma
Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.
Prof. Rajeev Jain
Department of Commerce and Management
University of Kota, Kota
Dr. Pragya Dheer
Department of Commerce and Management
University of Kota, Kota
Paper: 01, Human Resource Management
Module: 25, Types of Incentives system
2. Items Description of Module
Subject Name Management
Paper Name Human Resource Management
Module Title Types of Incentives system
Module Id Module no. 25
Pre- Requisites Basic knowledge of what are the types of incentives system.
Objectives To study the basic concepts of types of incentives system.
Keywords
QUADRANT-I
Module 25: Types of Incentives system
Learning Outcome
1. Types of Incentive Compensation
References
Learning outcome:-
Incentives schemes are also known as payment by results. The three factors which favour the payment of
Wage incentives to employees are: (i) the employees must be rewarded for their additional efforts in the
job; (ii) The payment facilitates the earning of the higher wages as an inducement for additional efforts;
(iii) It improves productivity & organisational profitability. The fairness of the outcome (reward) of an
incentive scheme determine its ability to win the employee’s compensation with the scheme.
However, the type of scheme is a critical factor in determining the quantum of reward available to the
employees. Therefore, an organisation must be prudent in choosing incentive schemes as the nature of a
scheme has a direct bearing on its outcome. However, the organisation must invariably ensure that the
incentive schemes are classified into three categories.
3. 25.1. Types of Incentive Compensation
There are various types of incentive systems which can be divided into three categories described below:
Fig. 25.1. Types of Incentive Compensation
25.1.1. Individual Incentives:
Individual incentive plan is the oldest form of compensation, in which the employee is paid for units
produced. Individual incentive plans pay off for individual performance. When individual productivity is
measureable, individual incentives are most successful in boosting performance through a fairly direct
link between performance & rewards.
These include the following:
4. 25.1.1. Piece Rate system:
The piece rate in the oldest & most common incentive plan.
The earliest approach was called straight piece work. In this
approach, a worker was paid per unit of production. It is very
common in factories around the world. It is based on paying
only for what is actually produced. A simple piece rate
approach often results in production variability that can
disrupt the flow of product to customers. Piece rate system is
easy to understand. It is useful in labour incentive industries.
The prerequisites for the implementation of this scheme are:
(i) The skill levels required in production must be similar;
(ii) Productvion should be expressible in units or numbers;
(iii) Production stoppage for which the employee is not
responsible should be compensated adequately. The formula
for computing the earning is:
Wage Earning = no. of units produced x the piece
rate per unit
25.1.1.2. Differential Rate:
Taylor developed the differential rate system as a response to
the variation potential in piece rate systems. Taylor’s
differential rate had two piece rates; one for performing
below standard & a higher rate for meeting or exceeding the
standard, thus encouraging workers to at least meet the
standard.
However, the major limitations of the differential piece rate
system are: (i) It may be difficult to set accurate & agreeable
standards of production; (ii) This method may result in the
employees cutting corners in their bid to produce faster: (iii)
It may create tensions & rivalry between the slow & the fast
performance; (iv) The employees may complain of
unfairness in the standard setting when they are not able to
achieve it.
25.1.1.3. Standard Hourly Rates:
Standard hourly rates differ from piece rate systems is that the production standard is expressed in time
units. Using job analysis, the standard time for given task is established & the organisation the sets a
fairly hourly wage rate. The standard rate for any task is the wage rate times standard. In some standard
hourly plans, the rates varies with output.
25.1.1.4. Production Bonus Systems:
Under these systems an employee is paid an hourly rate plus a bonus when the employee exceeds the
standard. The bonus usually equal approximately 50% of labour savings. It is also called time saving
bonus. In Japan, all employees receive semiannual production bonuses in December & June.
Piece Rate System
Differential Rate
Standard Hourly Rate
Production Bonus System
Commission
Bonuses
Awards
Merit Pay
People Based Pay
5. 25.1.1.5. Commissions:
This is incentive plan is usually found in sales jobs. This reward system
allows the salesperson to receive a % of his gross receipt (example, 5%
of all sales). About 75% of the salespeople work on a commission paid
is typically a percentage of the price of the item. Sometimes a salesman
is paid small salary & a commission or bonus when he exceeds the
budgeted sales goals.
Merits:- http://www.prosalesguy.ca/should-salespeople-be-paid-commission-or-salary/
Commission payments offer a very clear link between pay & worker performance
Commission plans are easy to administer
They justify between there is no subjective elements & rewards are purely a function of
performance.
Commissions provide sufficient incentive without adding too much to product cost.
Because commissions can be highly variable over time, some firms protect salespeople from low
sales periods by using a draw-plus commission system.
25.1.1.6. Bonuses:
To give bonus is a popular trend in compensation. It is one-time lump-sum
payment given for meeting a performance goal. Bonuses can be based on
objective goal attainment or a subjective rating. In some organisations all
employees share in the bonus awards if organisational goals are met whereas in
others the size of the bonus is tied to each individual’s performance. Bonuses also
can be based on individual or group based measures.
http://blog.turbotax.intuit.com/tax-tips/the-tax-implications-of-receiving-a-holiday-bonus-4419/
Merits:
Bonuses involve lower risk to the employer because the employer does not make a permanent
financial commitment
Bonus can be offered for a valuable cost-saving suggestion. Thus it promotes creativity.
It does not add permanently to be base wage & can be given based on either rated or non-rated
output measures.
It helps the employer control cost & improve employee satisfaction.
Because bonuses arrive in one lump-sum, they may feel to the employees like more money than a
comparable-sized raise.
It is based partly on organisational performance.
On the other hand, if bonuses cannot be paid, it tends to hurt morale.
25.1.1.7. Awards:
Awards like bonuses are on time rewards but tend to be given in the form of a tangible prize. Such as a
paid vacation, a television set, or a dinner for two at a fancy restaurant.
6. 25.1.1.8. Merit Pay:
The most widely used for managing individual performance is merit pay. It consists of an increase in base
pay, normally given once a year. Supervisors rating of employee’s performance are typically used to
determine the amount of merit pay granted. Once a merit pay increase is given to an employee, it remains
a part of that employee’s base salary for the rest of his future with the firm (except under extreme
conditions, such as general wage cut or a demotion).
Merit pay is based on the rated performance in a previous time period, or a reward based on how well an
employee has done the job.
In practice, merit pay system fail to reward superior performance because of the following problems:
(i) Employees fails to make the connection between pay & performance.
(ii) The secrecy of the reward is perceived by other employees as inequality.
(iii) The size of the merit pay has little effect on performance.
(iv) Merit pay is not always viewed as meaningful.
(v) It depends on the reward to produce an effect rather than planning & designing the effect at the outset.
(vi) Merit pay is always based on the supervisor’s subjective evaluation, so employees may perceive a
weak line between performance & pay.
(vii) Merit increases are usually awarded annually, so they do not immediately follow the specific
instances of good performance that the organisation wishes to reinforce.
For the merit pay to work & become successful, the following requirements are needed:
(i) Job should be well designed & the performance criteria are both well delineated & assessable.
(ii) There should be a high level of trust in the management.
(iii) There should be a correct job evaluation system & wage structure.
(iv) There should be job specific & results-based criteria to reduce subjective bias.
(v) There should be accurate performance appraisals.
(vi) The time should be minimized between the performance appraisal & pay increase, to maximize
reinforcement principle.
(vii) Managers should be trained in the correct use of the compensation system.
(viii) There should be proper feedback during performance appraisal session to ensure that employees are
aware of expected performance.
7. 25.1.1.9. People-Based Pay:
Compensation designs are changing to meet the
environmental challenges of the 21st
century. In place of
bureaucratic job-based approach, new designs are people
based. There are several different variants of people based
pay. These are discussed below:
(i) Skill-based Pay:
This methods sets pay levels on the basis of how many skills
employees have or how many jobs they can do. It is a reward
system that pays employees on the basis of the work-related
skills they posses rather than associating rewards with
performance levels or senority.
Under the skill-based system, no one gets a raise, even when promoted, until he has demonstrated
proficiency with new skills. It is associated with work teams or self managed work groups.
Merits:-
(i) It has increased flexibility. Because workers know more than on e job, they can more to provide
expertise when & where needed.
(ii) Tying pay increases to skill acquisition creates an incentives for learning, self improvement &
performance.
(iii) It is a creative approach to compensation.
(iv) It seeks employee involvement through total quality, continuous improvement & similar initiatives.
(v) It assumes that employees want to grow & improve their job skills.
(vi) it can be used to replace annual raises.
Demerits:
(i) It is difficult to design.
(ii) It does not fit all situations.
(iii) It involves a time consuming process of constructing skill blocks, mapping pay progressions, and
assigning monetary values to each skills.
Skill based pay can be successful only if the organisation has a commitment to employee training &
development & has something to gain from increased flexibility.
People
Based
Pay
Skill Based
Knowledge
Based
Credential
Based
Feedback
Competency
Based
8. (ii) Knowledge based pay:
This approach rewards employees for acquiring additional knowledge both within the current job
category & in new job categories.
(iii) Credential-based pay:
This reward system rests on the fact the individual must have a diploma or license or must pass one or
more examinations from a third party professional or regulatory agency. Credential based pay is much
more cut and dried than skill based or knowledge based pay.
(iv) Feedback Pay:
This reward approach is based on aligning pay with strategic business objectives & then establishing a
direct connection between the jobholder & his part in accomplishing these goals. This design must
conform to four principles: (1) It flows directly from the organisation’s strategic business goals; (2) It
directly links employee’s actions to these goals; (3) It provides sufficient opportunities for rewards to
hold employee’s attention, and (4) it is timely. This method replaces job descriptions with mission
statements as a means of directing employees.
(v) Competency-based Pay:
It is actually a combination of skill based pay, knowledge based pay and credential-based pay. It is often
applied to highly educated “knowledge workers”. In addition to skills, knowledge & credentials,
competency-based pay includes cognitive or subjective measures not usually considered in evaluating a
job.
Advantages of Individual Incentive Plans:
1. Performance that is rewarded is likely to be repeated
2. Individuals are goal-oriented & financial incentives can shape an individual goals over time.
3. Assessing the performance of each employee individually helps the firm achieve individual equity.
4. Individual based plans fit in with an individualistic culture
5. They are widespread in practice.
Disadvantages of Individual Incentive Plans:
1. These create dysfunctional competition and destroy cooperation among peers.
2. Sour relationship between subordinates & supervisors are created.
3. Individual pay plans may work against achieving quality goals.
4. Many employees do not believe that pay & performance are linked.
9. 5. And because many managers believe that below average raises are demoralizing to employees &
discourage better performance, they tend to equalize the percentage increases among employees,
regardless of individual performance. This of course, defeats the very purpose of an incentive plan.
6. Individual create inflated perceptions of their own work while deflating the work of others.
7. Workers are encouraged to “cut corners”. This will affect quality & safety.
Conditions Under which individual Incentive Plan are most likely to succeed:
Individual Incentive work best:
1. Where clear performance objectives can be set & where tasks are independent.
2. When the contribution of individual employees can be accurately isolated.
3. When the job demands autonomy.
4. When cooperation is less critical to successful performance.
5. When competition is to be encouraged.
6. When the supervisor reinforces & supports the system
7. When quality of work is not especially important.
8. When most delays in work are under the employee’s control.
25.1.2. Group and Organisationwide Incentives:
These incentives are shared by all members of the organisation. In
group incentives, two or more employees can be paid for their
combined performance. Group incentives make the most sense
where employee’s task are interdependent & thus require
cooperation. The goal of organisationwide incentives is to direct the
efforts of all employees toward achieving overall organisational
effectiveness.
Some major types of group-based & organisationwide incentives
are:
25.1.2.1. Profit Sharing:
Profit sharing has received a considerable boost in recent years.
Many companies are adopting profit sharing plan as a means of
promoting greater productivity to meet world competition. Profit
sharing seeks to promote a ‘culture of Ownership’. It develops a sense of belongingness, cooperation &
teamwork among all employees. Edwin Flippo writes, “Employee profit-sharing plans constitute one of
the more glamorous forms of monetary compensation used in business.”
Profit Sharing
Gain Sharing
Employee Stock
Option Plan
Suggesstion System
10. Profit sharing is a method of industrial remuneration under which an employer undertakes to pay his
employees a share in the annual net profits of the enterprise. This share is in addition to regular wages. It
is paid on compliance with certain service conditions & qualifications.
Objectives:
1. To increase productivity
2. To effect an increase in productive efficiency through reducing costs & increasing output.
3. To improve employee morale & to reduce labour-management strife.
4. To provide for employee security in the event of death, retirement or disability.
5. To constitute a mechanism of employee economic education.
6. To reduce turnover
7. To improve public relations.
8. To maintain peace & harmony between labour & the employer.
9. To recognize their right for sharing the prosperity of the concern.
10. To create a congenial atmosphere inside the organisation in which workers feel as partners rather than
employers.
11. To supplement worker’s earnings
12. To increase the interdependence of labour, management and capital. Employee earnings would adjust
quickly to changes in business conditions
13. To increase awareness and interest in the performance of the organisation.
14. To encourage long term commitment & loyalty to the company.
15. To attract & retain employees.
Types of Profit Sharing Plans:
1. Cash Payment Plan: Under this plan,
benefits are distributed among participants in
cash at least once each year. This is the most
popular. The firm simply distributes a
percentage of profits (usually 15% to 20%) as
profit shares to employees at regular intervals.
2. Deferred Payment Plan: Under this plan, the
employees share of profits is held in trust for
him to be paid either in installments or as
Types
Cash
Payment
Deferred
Payment
Combination
Payment
11. retirement benefits. If the employee is dismissed, the investment amount reverts to him and in the event of
his death, it is paid to his right department.
3. Combination Payment Plan: It is a combination of the cash & differed payment plans. It enables the
employee to get some immediate benefits & also to put away something for the future.
Importance of Profit sharing:
1. Increased Productivity: Profit sharing creates in the worker a genuine desire to work wholeheartedly
for the firm.
2. Improved Industrial Relation: Profit sharing offers a solution to the problems of industrial unrest &
strifle. It helps avoid industrial strikes & unrest.
3. Increased Earnings for workers: The simple effect of profit sharing will be additional earnings for the
workers. Thus, it contributes towards the material welfare of the workers.
4. Stabilisation of Labour Force: Profit sharing is applicable only to those workers who have stayed and
worked in organisation for a certain period.
5. Easy Supervision: Workers take interest and initiatives in the performance of their task if they are given
a share in the profits.
6. Social Justice: Profit sharing scheme helps realize the object of social justice by relating workers’
earnings to the financial position of the company.
7. Team Spirit: Under profit sharing scheme, both management and workers cooperation and work in a
team spirit as their interests are common.
8. Decrease in Labour Turnover: Workers will prefer to stay in a concern which gives them a share in the
profits. It leads to reduction in labour turnover.
9. Improvement in Standard of Living: the standard of living of workers depends on the wages and
income they receive from the concern.
10. Improved Motivation: When employees are given a share in profits, they feel highly motivated and
their morale is raised.
11. Attracts Talented Workers: The incentive of share in the profits encouraged talented workers to join
the organisation.
12. Other Merits:
i. It promotes equal partners in industrial enterprises.
ii. It protects workers’ right to bonus and their due share in productivity.
iii. It fills up the gap between living wage and the actual wage paid.
iv. It improves public relations.
v. It is a means of drawing labour and management closer together.
12. Disadvantages:
1. No Distinction between efficient and inefficient workers: All workers covered under this scheme of
profit sharing are entitled to an equal share of profit without reference to their efficiency.
2. It kills Personal Initiative: Profit sharing schemes do not make any distinction between good and bad
workers.
3. No Immediate Effects: Profit cannot be ascertained every month. The profit share is paid to the worker
only at the end of six month or a year.
4. Feeling of Distrust: Profit sharing sometimes may make workers distrustful of management.
5. Opposition by Trade Union: Sometimes trade unions might put up stiff opposition to profit sharing.
6. Employees also oppose: Many employees have not yet acceptable the idea of giving workers a share in
net profits.
7. Limited Motivational Impact: Beardwell and Len Holden have made it clear when they state, “the
motivational impact is limited as there exists a fragile and vague relationship between individual effort
and company profit.”
Pre-requisites for success in Profit Sharing:
1. A sense of partnership between labour and management should be created.
2. Satisfactory employer – employee relations should be maintained.
3. Up – to – date and sound personnel management programme should be formulated.
4. Congenial supervisory climate should be created.
5. There should be effective employee communication about the calculation and allocation of profit.
6. Profit sharing should be a supplementary device to wage incentive plan rather than supplanting it.
7. There should be a ‘productivity bonus’ side by side with profit bonus.
8. An effective employee educational plan about profit sharing must be adopted.
25.1.2.2. Gain Sharing:
Gain sharing is becoming a popular approach to motivate higher levels of group productivity. Gain
sharing plans generally are based on the assumption that better cooperation among workers and between
workers and managers will result in greater effectiveness. Gain sharing is a type of group incentive in
which a portion of the gains the organisation realizes from group effort is shared with the group. Many
organisations are seeking productivity and quality improvement through gain sharing plans. It is a
plantwide ‘pay for performance’ programme in which a portion of the company’s cost savings is returned
to workers, usually in the form of a lump – sum bonus.
25.1.2.3. Employee Stock Option Plans:
Many companies use employee stock options plans to compensate, retain and attract employees. These
plans are contracts between a company and its employees that give employees the right to buy a specific
number of the company’s shares at a fixed price within a certain period of time.
Employees Stock Options Plans should not be confused with the term “ESOP’s” or “Employee Stock
Ownership Plans” which are retirement plans. An employee stock ownership plan (ESOP) is a retirement
13. plan in which the company contributes its stock to the plan for the benefit of the company’s employees.
Under an employee stock ownership plan (ESOP), employees receive stock in the company. An ESOP is
a qualified, defined contribution plans in that the employer makes yearly contributions that accumulate to
produce a benefit that is not defined in advance. Technically, an ESOP is a kind of stock bonus plan, or a
combination of a stock bonus plan and a money purchase pension plan.
25.1.2.4. Suggestion System:
A suggestion system is a formal method of obtaining employees advice about improvements in
organisational effectiveness. It includes some kind of reward based on the successful application of the
idea. The key to successful suggestion system is employees’ involvement. Implementation of these
programmes have proved quite cost – effective. Suggestion systems can improve employee relations,
foster high quality products, reduce costs and increase revenue. In Japan suggestion systems are one of
the main practical forms of worker participation schemes.
Figure 25.2. shows how employees benefit from a stock option scheme.
14. Source: Business Today, January 7 – 21, 1996
Fig.25.2. How to Implement a Stock Option Scheme.
Merits of Organisationwide Incentives:
1. Financial flexibility for the firm is maintained.
2. Various incentives at the organisation level increases employee commitment.
3. Company has tax advantages as both profit sharing and ESOP’s enjoy special tax privileges.
Demerits:
1. Under profit sharing or ESOP plans, workers’ financial well being may be threatened by factor
beyond their control. Hence, employees may be at considerable risk.
2. Because the connection between individual goal achievement and firm performance is small and
difficult to measure, organisationwide programmes are not likely to improve productivity.
3. Both profit sharing and ESOPs often appear painless to the company in the short run, but the
company may face financial difficulties in the long run.
4. All the organisationwide incentives suffer from a dilution effect. It is hard for employees to see
how their efforts results in the organisations’ overall performance.
5. These plans also tend to distribute their payoffs at wide intervals.
6. We should not overlook what happens when organisationwide incentives become both large and
recurrent.
25.1.3. Managerial and Executive Incentive Pay:
25.1.3.1. Executive Bonus Plans:
Bonuses play an important role in today’s
competitive executive payment programmes. This
type of incentive is usually short term (annual) and
based on performance. There are almost as many
bonus systems as there are companies using this form
of executive compensation. In some systems, the
annual bonus is tied by formulas to objective
measures, such as gross or net profits, earnings, share
price or return on investment.
25.1.3.2. Long Term Incentives:
To encourage a longer perspective, many boards of
directors are adopting plans of long term incentives
for executives. Most executives receive long term
incentives, either in the form of equity in the firm
(stock based programmes) or a combination of cash awards and stock. Stock options have been a common
incentive offered to executives. They generally allow executives to purchase, at some time in the future, a
specific amount of the company’s stock at a fixed price. Under the assumption that good management
will increase the company’s profitability and therefore, the price of the stock, stock options are viewed as
performance – based incentives.
Executive
Bonus Plan
Long Term
Incentives
Perquisites
Managerial
n
Executive
15. 25.1.3.3. Perquisites:
Executives are frequently offered special incentives known
as ‘perquisites’. These ‘perks’ are offered to attract and keep
good managers and to motivate them to work hard in the
organisations’ interests. In addition to the standard benefits
offered to all employees, some benefits are reserved for
privileged executives. These ‘perks’ are given to supplement
the basic benefit package.
Popular perks include the following:
i. Payment of the life insurance premiums.
ii. Club memberships
www.slideshare.net/vaishali_bansal/perquisites-allowance
iii. Company automobiles and special parking
iv. Liberal expense accounts
v. Supplemental disability insurance
vi. Supplemental retirement accounts
vii. Post retirement consulting contracts
viii. Personal financial, tax and legal counseling
ix. To pay for vacation travel
x. Low cost loans
xi. Personal use of company facilities (eg: airplanes)
xii. Chauffer service, concierge service.
25.1.3.4. Golden Parachute:
This popular benefit was designed by top executives as a means of protecting themselves if a merger took
place. These parachutes provides either a severance salary to the departing executive or a guaranteed
position in the newly created (merged) organisation.
Summary:
Individual incentive plans include Halsey, Rowan, Emerson, Bedeaux, Taylor, Merrick and Gantt Plans,
Priestman, Towne and Scanlon plans are group incentive schemes. Profit sharing helps to improve morale
and productivity of employees as well as workers’ income and living standards. It does not have
motivational value.