COMP EXAM 2 (Chpt 10: Pay for Performance)

Merrick multiple piece rate system

Establishes 3 piecework rates High, Median, and Low High (above 100) 100, Median (83-100), and Low (Below 83)

Taylor differential piece-rate system

Establishes two piecework rates 5 is standard, is I make more than I get paid above standard, and if I make less, than I get paid below the standard.

Straight Piecework Plan

How does it take you to put together a motor. o Standard hour plan Timing how long it takes you to put together a motor.

Gantt Plan

In the begging the standard amount of time to achieve the task is difficult to achieve from the gecko. If someone completes the task at the standard or a above, than the worker is going to get 120% times the time saved

Halsey 50-50 Method

One standard level, here's what you get. Sets an a standard on average what it takes

Broad-based option plans (BBOPs)

Stock Grants over a designated period of time. Newer Trend Strength is versatility

Key elements to designing a gain-sharing plan

Strength of Reinforcement Productivity Standards Sharing the Gains Scope of the formula Perceived fairness of the formula • Let employees vote in whether or not they want to go ahead with the gain sharing plan.

Rucker Plan

- (labor costs/value added) Expresses the value of production required for each dollar of total wage bill.

Scanlon Plan

Designed to lower labor costs without lowering the level of a firms activity. (pay role costs/net sales) Incentives are derived • As a function of the ration between labor costs and sales value of production (SVOP) • SVOP includes sales revenue and value of goods in inventory. • Scanlon focuses more on labor savings

Lump Sum Bonus Advantage

From the standpoint of the company, potential cost savings because the company is not on the hook to pay it in substantive years.

Individual Incentive Plan Disadvantage

Generally cause more distrust between management and employees

Bedeaux Plan

o A variation on straight piecework and standard hour plan. o Is going to break a job into tasks o Breaks down the "Motor" into smaller tasks

Lump Sum Bonus Disadvantages

• Employees may not find it very attractive • Employees would prefer merit pay over lump sum bonuses.

Individual Spot Awards

• Individual incentive plans • A payout that is award for individual exceptional performance. • No advance notices that are typically found in merit or lump sum.

Individual Incentive Plans Advantages

• Less argument in procedural justice • Typically need less direct supervision when one of these plans are in place. • Allows for easier estimation of labor costs.

Group Incentive Plan Disadvantages

• Line of sight is reduced. • Increases compensation risk for employees

Lump Sum Bonus

• Not Built into base pay • Less of an entitlement

Merit Pay Advantages

• Provides incentives for other to perform at a higher level. • There is evidence to indicate that good merit pay systems lead to increased performance

Merit Pay Disadvantages

• There are probably a fair number of questions the way performance is being evaluated. • What is everyone is truly a top performer • Can be very costly

Group Incentive Plan Advantages

• There is a positive impact on performance (however, not as high as in individual incentives • Easier to administer • Results in better decision making within an organization

Performance Review

Links increase in base pay to how highly an employee is rated on a performance evaluation

Individual Incentive Plans

Objective, pre-established level of performance Dimension on which plans vary o Method of rate determination o Relationship between production and wages (Table 10.5) .

Built into Base Pay

Once you give it, you are signed on to continue to give it

Rowan Plan

Workers' bonuses increase as the time to complete the task decreases.

Employee stock ownership plans (ESOPs)

- A plan in which a company borrows money from a financial institution by using its stock as a collateral for the loan. - Principal and interest loan repayments are tax deductible. - With each loan repayment, the lending institution releases a certain amount of stock being held as security. - The stock is then placed into an employee stock ownership trust (ESOT) for distribution at no cost to all employees. The employees receive the stock upon retirement or separation from the company. - TRASOPs and PAYSOPs are variants of ESOPs.

Improshare (Improved productivity through sharing)

- Develops standards to: identify expected hours required to produce an acceptable level of output. - Savings are shared by firm and workers - Easy to administer and to communicate

Profit Sharing

- Focuses on a predetermined index of profitability - Company should specify the funding formula

Gain Sharing (group incentive ) plans

- Incentive plans that are based on some measure of group performance rather than individual performance. - Taking data on a past year as a base, group incentive plans may focus on cost savings (e.g. Scanlon, Rucker, and Improshare plans) as the standard for distributing a portion of the accrued funds among relevant employees.

3 Formulas for Gain Sharing Plans

- Scanlon Plan - Rucker Plan - Improshare

Earning-at-Risk Plans

- Success Sharing Plan - Risk Sharing Plan

Scanlon Plan

-A group cost-savings plan designed to lower labor costs without lowering the level of a firm's activity. -Incentives are derived as the ratio between labor costs and salves value of production (SVOP)

Improshare

A gain-sharing plan in which a standard is developed to identify the expected hours required to produce an acceptable level of output Any savings arising from production of agreed-upon output in fewer-than-expected hours are shared by the firm and the worker.

Rucker Plan

A group cost savings plan in which cost reductions due to employee efforts are shared with the employees. -Involves a somewhat more complex formula than a Scanlon Plan for determining employee incentive bonuses.

Risk Sharing Plan

Base pay is reduced by some amount.

Performance Plans

Cash or stock awards earned through achieving specific goals.

Individual Spot Awards Advantage

Cost savings and flexibility

Individual Spot Award Disadvantage

Could be perceived as unfair.

Success Sharing Plan

Employee base pay is constant

Self Funding Plan

These plans specify that payouts only occur after the company reaches a certain profit target. Then variable payouts for individual, team, and company performance are triggered.