Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 17 : HR management: Financial Rewards Lecturer: Zhu Wenzhong

Copyright © 2002 by Harcourt, Inc. All rights reserved. Define the term “financial rewards” Define the term “financial rewards” Explain the five payment schemes for rewarding employees Explain the five payment schemes for rewarding employees Explain the five types of incentive schemes used by businesses to motivate workers Explain the five types of incentive schemes used by businesses to motivate workers Explain the incentive schemes for employees and those for managers and directors Explain the incentive schemes for employees and those for managers and directors State some problems with these incentive schemes State some problems with these incentive schemes LEARNING GOALS

Copyright © 2002 by Harcourt, Inc. All rights reserved. CompensationCompensation Financial rewards: Wage — compensation based on an hourly pay rate or the amount of output produced. Salary — compensation calculated on a periodic basis, such as weekly or monthly. Benefits

Copyright © 2002 by Harcourt, Inc. All rights reserved. CompensationCompensation Most firms base their compensation policies on five factors: Salaries and wages paid by others Government legislation Cost of living Firm ’ s ability to pay Worker productivity

Copyright © 2002 by Harcourt, Inc. All rights reserved. Payment schemes Time rates: paid for the time spent at work, weekly or monthly Time rates: paid for the time spent at work, weekly or monthly Annualized hours: paid on the basis of certain hours a year Annualized hours: paid on the basis of certain hours a year Piece rates: paid for each item produced Piece rates: paid for each item produced Commission: paid by a percentage of the value of each good sold Commission: paid by a percentage of the value of each good sold Fringe benefits: extra pay for insurance, car or training Fringe benefits: extra pay for insurance, car or training © PhotoDisc

Copyright © 2002 by Harcourt, Inc. All rights reserved. Question for critical thinking What are the objectives of employees for the payment they receive? What are the objectives of employees for the payment they receive? © PhotoDisc

Copyright © 2002 by Harcourt, Inc. All rights reserved. Types of incentive scheme Piece rate Piece rate Profit sharing Profit sharing Profit-related pay Profit-related pay Share-related pay Share-related pay Performance-related pay Performance-related pay

Copyright © 2002 by Harcourt, Inc. All rights reserved. Types of incentive scheme Each unit produced over the target is rewarded with a bonus or commission payment. Each unit produced over the target is rewarded with a bonus or commission payment. Piece rate scheme

Copyright © 2002 by Harcourt, Inc. All rights reserved. Types of incentive scheme Profits are shared equally or as agreed by partners. Profits are shared equally or as agreed by partners. Piece rate Profit-sharing

Copyright © 2002 by Harcourt, Inc. All rights reserved. Employees are paid a bonus as a percentage of the profit amount made by a company. Piece rate Profit-sharing Profit-related pay © PhotoDisc Types of incentive scheme

Copyright © 2002 by Harcourt, Inc. All rights reserved. Employees are offered some shares or the possibility of purchasing some shares as an incentive Piece rate Profit sharing Profit-related pay Share-ownership © PhotoDisc Types of incentive scheme

Copyright © 2002 by Harcourt, Inc. All rights reserved. Types of incentive scheme Employees’ annual salary is linked to their performance in the job. The size of payment is determined by the achievement of the set target. Piece rate © PhotoDisc Profit sharing Profit-related pay Share-ownership Performance-related pay

Copyright © 2002 by Harcourt, Inc. All rights reserved. Question for critical thinking Why do companies encourage the use of share ownership as an incentive scheme? Why do companies encourage the use of share ownership as an incentive scheme? Incentive schemes may differ for employees and managers and directors. What are the different incentive schemes between them? Incentive schemes may differ for employees and managers and directors. What are the different incentive schemes between them? © PhotoDisc

Copyright © 2002 by Harcourt, Inc. All rights reserved. Problems with the incentive schemes in practice Operating problems Operating problems Product quality problems Product quality problems Quality of working life Quality of working life Jealous problems Jealous problems © PhotoDisc

Copyright © 2002 by Harcourt, Inc. All rights reserved. Four Forms of Incentive Compensation

Copyright © 2002 by Harcourt, Inc. All rights reserved. CompensationCompensation Employee Benefits — rewards such as retirement plans, health insurance, vacation, and tuition reimbursement provided for employees either entirely or in part at the company ’ s expense. Some benefits, e.g. Social Security contributions, are required by law

Copyright © 2002 by Harcourt, Inc. All rights reserved. CompensationCompensation Flexible benefit plan (cafeteria plan) — benefit system that offers employees a range of options from which they can choose they types of benefits they receive Flexible work plan — employment that allows personnel to adjust their working hours and places of work to accommodate their personal lives Flextime Compressed workweek Job Sharing Home-based work program