Human Resource Management By Dr. Debashish Sengupta

Performance-based Compensation 13 CHAPTER Human Resource Management

Key Terms Performance-based Pay Individual Incentive Profit Sharing Employee Stock Options Performance Bonus Incentive Piecework Payment of Bonus Act Piecework Plan Variable Pay Human Resource Management

Performance-based Pay/ Variable Pay Performance-based pay is also called as Variable pay. Variable pay is used to recognize and reward employee contribution towards company productivity, profitability, or some other metric deemed important. Variable pay is awarded in a variety of formats including profit sharing, bonuses, holiday bonus, deferred compensation, cash, and goods and services such as a company-paid trip etc. Human Resource Management

Types of performance-based Pays Performance pays range from individual to team-based and organization based. Some of the types of performance pays are: a) Merit Pays/Increments b) Incentives i. Individual Incentives ii. Gain Sharing iii. Profit Sharing iv. Employee Stock Options (ESOPs) Except the first one, the rest are group incentives. c) Performance bonus Human Resource Management

Individual Incentives Individual incentives are lump sum payments like sales commission, worker incentives etc. based on standard piece-rate system or standard hour system. Individual incentive plans include Piece-work Plans, Management incentive plans, etc. Piecework Plans: Incentive Piecework is a type of incentive program whereby the employee is paid based on each unit of output. Management Incentive Plan: The Management Incentive Plan generally applies to the senior executives with a significant level of responsibility within the organization. The Incentive Plan contains both an annual and a long term incentive element. Human Resource Management

Gain-Sharing & Profit-Sharing Gain-sharing and profit-sharing are group incentive plans. The former is based on the gains made by the organization in any aspect, which could be in the form of better outputs, sales, or even optimization of inputs, less wastage, less down-time, low incidence of re-works, increased client satisfaction etc. Human Resource Management

Employee Stock Options (ESOPs) Employee Stock Options or ESOPs are plans give employees the right to buy specific number of shares of the company at a fixed price within a certain period of time. Many companies use Employee Stock Options Plan (ESOP) to compensate, retain and attract employees. ESOPs are long-term instruments and hence the gain of such options is realized by an employee only when he/she sticks to a company for 4-5 years. Human Resource Management

Performance Bonus Money is recognized as a motivator by many companies and they use performance bonus as a supplemental payment in addition to the salary to prop-up the performance. In 2010, Indian Railways had given 77 days salary to all its employees in the form of productivity-linked bonus to all its non- gazetted employees. In the year 2011, Human Resource Management

The Payment of Bonus Act, 1965 The payment of Bonus in India is determined the payment of bonus act, 1965. The Payment of Bonus Bill having been passed by both the Houses of Parliament received the assent of the President on 25th September, 1965. It came on the Statute Book as The Payment of bonus Act, 1965. Since then many amendments have been made to this act. Human Resource Management