HRM CHAPTER 10

Setting Performance Measures

Measuring and differentiating performance among employees is one of the most difficult tasks you will face as a manager.

Profit Sharing (term)

Any procedure by which an employer pays, or makes available to all regular employees, in addition to base pay, special current or deferred sums based on the profits of the enterprise or on the organization's profits.

Spot Bonus(term)

An unplanned bonus given for employee effort unrelated to an established performance measure.

Scanlon Plan (term)

A bonus incentive plan using employee and management committees to gain cost-reduction improvements.

Straight Commission Plan (term)

A compensation plan based on a percentage of sales

Team Incentive Plan(term)

A compensation plan in which all team members receive an incentive bonus payment when production or service standards are met or exceeded.

Combined Salary and Commission Plan (term)

A compensation plan that includes a straight salary and a commission.

Salary Plus Bonus Plan (term)

A compensation plan that pays a salary plus a bonus achieved by reaching targeted sales goals.

Straight Salary Plan (term)

A compensation plan that permits salespeople to be paid for performing various duties that are not reflected immediately in their sales volume.

Differential Piece Rate(term)

A compensation rate under which employees whose production exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard amount.

Improshare (term)

A gainsharing program under which bonuses are based on the overall productivity of the work team.

Merit Pay

A merit pay program (merit raise) links an increase in base pay to how successfully an employee performs his or her job.

Standard Hour Plan(term)

An incentive plan that sets rates based on the completion of a job in a predetermined standard time.

Straight Piecework (term)

An incentive plan under which employees receive a certain rate for each unit produced.

Bonus (term)

An incentive payment that is supplemental to the base wage.

Requirements for a Successful Incentive Plan

Compensation specialist Joanne Sammer notes the following as characteristics of a successful incentive plan: 1. Identify important organizational metrics that encourage employee behavior. 2. Involve employees. Incentive programs should seem fair to employees. 3. Find the right incentive payout. Payout formulas should be simple and understandable. 4. Establish a clear link between performance and payout.

Incentive Plans as Links to Organizational Objectives

Contemporary arguments for incentive plans focus on linking compensation rewards, both individual and group, to organizational goals. By compensation and organizational objectives, managers believe that employees will assume "ownership" of their jobs, thereby improving their effort and overall job performance.

Enterprise Incentive Plans

Enterprise Incentive Plans reward employees on the basis of the success of the organization over an extended time period, normally a year but the period can be longer.

Group Incentive Plans

Group Plans enable employees to share in the benefits of improved efficiency realized by major organizational units or various individual work teams.

Merit Guidelines (term)

Guidelines for awarding merit raises that are tied to performance objectives.

Incentive Awards and Recognition

Incentive awards and employee recognition are an important part of an employer's pay-for-performance compensation strategy.

Strategic Reasons for Incentive Plans

Incentive pay plans establish a performance "threshold" that an employee or group of employees must achieve to qualify for incentive payments.

Unique Needs of Sales Incentive Plans

Incentive systems for salespeople are complicated by the wide differences in the types of sales jobs.

Individual Incentive Plans

One word, flexibility, describes the design of individual incentive plans.

Gainsharing Plans (term)

Programs under which both employees and the organization share financial gains according to a predetermined formula that reflects improved productivity and profitability

Incentives for Professional Employees

Sometimes professional employees cannot advance beyond a certain point in the salary structure unless they are willing to take an administrative assignment. When promoted their talents are no longer utilized fully and the organization may loose a good professional employee and gain a poor administrator. To avoid this situation, some organizations extend the salary range for professional positions to equal or nearly equal that for administrative positions.

Perks or Perquisites

Special nonmonetary benefits given to executives; often referred to as perks. They are a means of demonstrating the executive's importance to the organization.

Employee Stock Ownership Plans or ESOPs (term)

Stock plans in which an organization contributed shares of its stock to an established trust for the purpose of stock purchases by it's employees.

Executive Benefits

The benefits package offered executives may parallel one offered to other groups of employees. Various programs for health insurance, life insurance, retirement plans, and vacations are common.

Sales Incentives

The enthusiasm and drive required in most types of sales work demand that sales employees be highly motivated. These incentive plans must provide a source of motivation that will elicit cooperation and trust.

Stock Options

The use of stock options is a very prevalent method of motivating and compensating hourly employees, as well as salaried and executive personnel. This appears true regardless of the industry surveyed or the organization's size. Stock option programs are sometimes implemented as part of an employee benefit plan or as part of a corporate culture linking employee effort to stock performance.

Executive Base Salaries

These represent between 30 and 40 percent of total annual compensation. An analysis of executive salaries shows that the largest portion of executive pay is received in long-term incentive rewards and bonuses.

Variable Pay(term)

Tying pay to some measure of individual, group, or organizational performance.

Administering Incentive Plans

While incentive plans based on productivity can reduce direct labor costs, to achieve their full benefit they must be carefully thought out, implemented, and maintained.