Transcript Human Resource Management 11e.

Effective Incentive Plans
Figure 13–1
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13–1
Types of Variable Pay Plans
Figure 13–3
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13–2
Types of Sales Compensation Plans
• Salary-Only
• Commission
 Straight Commission
Compensation is computed as a percentage of sales in
units or dollars.
 The draw system make advance payments against future
commissions to salesperson.

 Salary-Plus-Commission or Bonuses

Compensation is part salary for income stability and part
commission for incentive.
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Determining Sales Effectiveness
Figure 13–5
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13–4
Special Incentive Programs
• Performance Awards
• Recognition Awards
• Service Awards
• Bonus
• Spot Bonus
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Other Types of Organizational/Team
Incentives
• Profit Sharing
• Gainsharing (Teamsharing or Goal
Sharing)
• Stock Option Plan
• Employee Stock Ownership Plan (ESOP)
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13–6
Types of Benefits
Figure 14–4
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Organizational Incentives
 A system to distribute a portion of the profits of
the organization to employees.
 Primary objectives:
Increase productivity and organizational performance
 Attract or retain employees
 Improve product/service quality
 Enhance employee morale

 Drawbacks
Disclosure of financial information
 Variability of profits from year to year
 Profit results not strongly tied to employee efforts

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13–8
Group/Team Incentives
Distribution of
Group/Team
Incentives
Timing of
Group/Team
Incentives
Design of
Group/Team
Incentive Plans
Decision Making
About Group/Team
Amounts
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13–9
Developing Successful Pay-for-Performance
Plans
• Reasons for Adopting Pay or Incentive Plans:
 Link more directly strategic business goals and
employee performance.
 Enhance organizational results and reward
employees financially for their contributions.
 Reward employees to recognize different levels of
employee performance.
 Achieve HR objectives, such as increasing
retention, reducing turnover, recognizing training,
or rewarding safety and attendance.
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13–10
Successes and Failures of
Variable Pay Plans
Successful incentive plans require:
 Clearly communicated.
 Realistic performance measures.
 Current plans and linked to organizational
objectives.
 Strong links among performance results and
payouts.
 Clear identification of variable pay incentives
separately from base pay.
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Learning Objectives
 Define variable pay and identify three elements of
successful pay-for-performance plans.
 Discuss three types of individual incentives.
 Explain three ways that sales employees are typically
compensated.
 Identify key concerns that must be addressed when
designing group/team variable pay plans.
 Discuss why profit sharing and employee stock ownership are
common organizational incentive plans.
 Identify the components of executive compensation and
discuss criticisms of executive compensation levels.
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Purposes of Special Incentives
Figure 13–4
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Group/Team Incentives (cont’d)
• Problems with Group/Team Incentives
 Rewards in equal amounts may be perceived as
“unfair” by employees who work harder, have more
capabilities, or perform more difficult jobs.
 Group/team members may be unwilling to handle
incentive decisions for co-workers.
 Many employees still expect to be paid according
to individual performance.
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Employee Stock Plans
 A plan that gives employees the right to purchase
a fixed number of shares of company stock at a
specified price for a limited period of time.


If market price of the stock is above the specified option
price, employees can purchase the stock and sell it for a
profit.
If the market price of the stock is below the specified
option price, the stock option is “underwater” and is
worthless to employees.
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Employee Stock Plans
 A plan whereby employees gain significant stock
ownership in the organization for which they work.
 Advantages

Favorable tax treatment for ESOP earnings

Employees motivated by their ownership stake in the firm
 Disadvantages


Retirement benefit is tied to the firm’s future
performance
Management tool to fend off hostile takeover attempts.
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Components of Executive
Compensation Packages
Figure 13–9
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Common Executive Compensation Issues
Figure 13–10
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