Human Resource Management Presented by: khurram Shahzad khurram Shahzad BSIT07-32 BSIT07-32 Presented to: Sir Ahmad Tasman Pasha Department of Computer Science Bahuddin Zakariya University Multan, Pakistan

Chapter name : Pay For Performance And Financial Incentives  Organization Wide Variable Pay Plans  Incentives For Blue-collar Jobs Topics

Contents Organization Wide Variable Pay Plans  What is Incentive?  What is Incentive plan?  Organization wide incentive plans  ESOP  Scanlon Plans  At risk Variable Pay Plans

What is incentive? “Rewards paid to workers whose production exceeds some predetermined standard.”  Rewards can be in the form of bonus, vehicles, house facility and by many other ways.

What is incentive Plan? “ A plan in which production standard is set for the workers who exceeds the production standard ”. Example  “ NFC Marketing Sales Officer ” is rewarded on the basis of fertilizer sales in his region.

What is Organization wide incentive Plan? incentive Plan? “ Incentive Plans in which all employees can participate ”.  Here Production Standard is set for all employees of an organization.

Types Of Organization wide incentive Plan incentive Plan  Profit Sharing Plans  ESOP  Scanlon plans  At Risk Variable Pay Plans 80% of the companies using profit sharing use the deferred option.

Organization wide incentive Plans ESOPProfitSharing Scanlon Plans At Risk Variable Pay Plans

Profit Sharing Plans “ Plans in which employees receive a share of the firm’s annual profit. ”  Profit sharing is not dominant in many industrialized countries. Participant Eligibility Any employee age 21 and older who has completed two years of service must be included in the plan. (This can be vary from organization to organization)

 Cash or current distribution plans  Deferred plans  Both Profit Sharing Plans Combinations

Cash plans Employees receive cash shares of the firm's profits at regular intervals. Deferred profit-sharing plans A predetermined portion of company profits is placed in each employee’s account under a well organized department. Profit Sharing Plans

 The company contributes a portion of its profits to a pool that will be distributed among eligible employees.  The amount distributed to each employee may be weighted by the employee's base salary.  so that employees with higher base salaries receive a slightly higher amount of the shared pool of profits.  Generally this is done on an annual basis. How does Profit sharing work?

 Boost productivity and Morale.  Brings groups of employees to work together toward a common goal  Helps employees focus on profitability.  Enhances commitment to organizational goals. Advantages of Profit Sharing Plans

Example  Lincoln Electric Company HERE Profits(15%-20%) are distributed to employees based on their individual merit rating.  Home Depot Organization It distributed $90 million in 2003 using Profit Sharing Plan

Employee Stock Ownership PLAN (ESOP)  A corporation annually contributes its own stock or cash (with a limit of 15% of compensation) to be used to purchase the stock to a trust established for the employees. “ESOP is a retirement plan in which the company contributes its stock to the trust. The trust distributes the stock to employees on retirement or separation from service”.

The trust holds the stock in individual employee accounts and distributes it to employees upon separation from the firm if the employee has worked long enough to earn ownership of the stock. Employee Stock Ownership PLAN (ESOP)

Advantages Of ESOP  ESOP help employees develop a sense of ownership and commitment to the firm, and help to build teamwork.  No taxes on ESOP are due until employees receive a distribution from the trust, usually at retirement.

Example Of ESOP  Thermacore Company Thermacore is a private company and it Uses the ESOP system to give seniority to their employees. Seniority Formula 15% of company income × employee bonus pool %age rate

Scanlon Plan “An incentive plan developed in 1937 by Joseph Scanlon and Designed to encourage cooperation, involvement and sharing of benefits cooperation, involvement and sharing of benefits ”. Important Features  Co-operation of employees  Mission and Policies  Competency  Sharing of benefits formula

At Risk Variable Pay Plans “Plans that put some portion of the employee’s weekly, monthly and yearly pay at risk, subject to the firm’s meeting it’s financial goals ”.  If employees meet or exceed their goals, they earn back not only the portion of their pay that was at risk but also some incentives.  If they fail to meet their goals, they forego some of the pay they would normally have earned. Important Rules

Contents Incentive Plans For Blue Collar Jobs  Piecework Plan  Straight Piecework Plan  Standard Hours Plan  Merit pay plan

Piecework Plans “ A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day. ” Example  Programmer Job

Straight Piecework Plan “An incentive plan in which a person is paid a sum for each Item he or she makes or sells, with a strict proportionality Between results and rewards. ” Example  If Programmer develops an outstanding software for an organization that is above the expectations of organization then he will be rewarded.

Standard Hour Plan “A plan by which a worker is paid a basic hourly rate but is paid an extra %age of his or her rate for production exceeding the standard per hour or per day similar to piecework payment but based on a percent premium.”

Merit Pay Plan “Any Salary increase awarded to an employee based on his or her individual performance.” Example  Promotion system in private sector in Pakistan.