Chapter 12 - Pay for Performance and Financial Incentives

Negatives of Financial Incentives

-Performance Pay cannot replace good management -Pay is not a motivator -Rewards rupture relationships -Rewards undermine responsiveness (focused solely on one outcome)

What is a guaranteed piecework plan?

-Will get paid a certain amount every week -For every cup I create on top of that I get additional compensation

How to implement incentive plans

-pay for performance -link incentives to activities that engage employees -link to measurable competencies -match incentives to organizational culture -keep group incentives clear and simple -over communicate -greatest incentive is the work itself

Name and describe three plans for salespeople

1. Salary Plan (fixed) 2. Commission Plan (pay in direct proportion to sales generated) 3. Combination Plan

Implementing Team or Group incentives.

1. Set standards for each member of the group (paid based on highest or lowest performer) 2. Set standards for group as a whole 3. Use a group defined measure of performance

What is an Employee Share Purchase / Stock Ownership Plan?

A trust holds shares of the company stock. Purchased for or issued to employees to create commitment and ownership within employees

What is a straight piecework plan?

Amount of money per output. Ex. a dollar per coffee cup, create 10, get $10

What is Variable Pay?

Any plan that ties pay to productivity or profitability (or some other outcome), may be in addition to base pay.

What is Merit Pay or Merit Raise?

Any salary increase awarded to an employee based on individual performance (Different than one time bonus)

What are the three things needed instead of incentives to drive engagement and motivation (based on TED Talk)

Autonomy (doing it for us), Mastery (getting better at something that matters), Purpose (larger than ourselves)

What is Fixed Pay?

Compensation independent of performance level. Includes base pay, allowances...

What is a Gainsharing Plan?

Engages employees to achieve productivity objectives and share the gains. Works in stable organizations with predictable goals/measures of performance.

TedTalk - What is 20 percent time?

Engineers at google can spend 20% of their time working on anything they want.

TedTalk - What is a FEDEX day?

Engineers have days where they have to produce and present a new cool thing in one day. Fun, self motivation.

Ex. An office worker who makes $200 a day no matter what is receiving

Fixed Pay

What is a differential piecework plan?

Like the guaranteed piecework plan but there's an expectation of how much you should be able to produce. Any amount over the standard gets additional percentage of income.

What is a Profit-Sharing Plan?

Most or all employees share in the company's profits (Portion of profits are split among employees)

Ted Talk explains that incentives only work for tasks that are...

Narrow and simple. Incentives narrow our view, we can't think abstractly or creatively as well if our mind is narrowed by incentives.

TedTalk - What is ROWE?

People don't have schedules. Just have to get their work down, how, when, and where is totally up to them. Productivity, engagement, retention go up.

What is the oldest and most commonly used plan?

Piecework Plan

What are Team or Group incentives offered for operations employees?

Production standard is set for a specific group, incentive paid if the group exceeds the goal.

Advantages of piecework plan

Simple, appears equitable (better employees get more), directly tied to performance

Disadvantages of piecework plan

Some employers raise standards, difficult to adjust for changes in hourly rates, resistance to revising the standard (working as hard but now get less), quality may be compromised.

Things to consider when looking at long term incentives for executives

Stock options, performance share units plan, appropriate link to strategy

Things to consider when looking at short term incentives for executives

Things like bonuses. Have to determine who, how much

Ex. A salesman who receives pay based on commission is receiving

Variable Pay

Combination Plan pros and cons

advantages: earnings floor allows compensation for administrative work disadvantages: may be a compromise often confusing to calculate

Commission Plan Pros and Cons

advantages: greatest incentive, attracts high performing sales people sales costs proportion to sales level easy to understand/compute disadvantages: focus on sales, not customer relationship variances in income among sales people sales people may neglect other duties

Salary Plan Pros and Cons

advantages: works for prospecting and account servicing salespeople know their income in advance easy to reassign sales people enhances long-term perspective disadvantages: high performance not recognized/rewarded salary usually based on seniority, demotivating for high performing sales people