1. Pay-for-Performance and Financial Incentives
Dessler, Cole, and Sutherland
Human Resources Management in Canada
Canadian Ninth Edition 12
Chapter Twelve
Pay-for-Performance and Financial Incentives
© 2005 Pearson Education Canada Inc., Toronto, Ontario
12-1

2. Money and Motivation: Background and Trends
Variable Pay
-plan that links pay to productivity or profitability
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3. Money and Motivation: Background and Trends
Types of Incentive Plans
-individual incentive programs
-group incentive programs
-profit sharing plans
-gainsharing plans
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4. Incentives for Operations Employees
Piecework plans – straight; guaranteed
Standard hour plan
Team or group incentive plan
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5. Incentives for Managers and Executives
Short-term Incentives
annual bonus
Long-term Incentives
capital accumulation plans
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6. Incentives for Managers and Executives
Annual Bonus - Decisions
Eligibility
Fund size
Determining individual awards
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7. Incentives for Managers and Executives
Long-Term Incentives
Stock options
Book value plan
Stock appreciation rights
Performance achievement plan
Restricted stock plans
Phantom stock plans
Performance plans
© 2005 Pearson Education Canada Inc., Toronto, Ontario

8. Incentives for Salespeople
Salary
Plan
(fixed salary)
Commission
Plan
(pay in direct
proportion
to sales)
Combination
Plan
(salary plus
commission)
© 2005 Pearson Education Canada Inc., Toronto, Ontario

9. Incentives for Other Professionals
Merit Pay
-salary increase awarded to an employee
-based on individual performance
-effectiveness based on validity of performance
appraisal system
-sometimes paid as a lump sum without changing
base salary
© 2005 Pearson Education Canada Inc., Toronto, Ontario

10. Incentives for Other Professionals
Incentives for Professional Employees
-bonus represents small portion of total pay
-incentives based on results longer than one year
-up-to-date equipment and facilities
-supportive management style
-support for research publications
© 2005 Pearson Education Canada Inc., Toronto, Ontario

11. Organization-Wide Incentive Plans
-profit sharing plans
-employee share purchase/stock ownership plans
-Scanlon plans
-gainsharing plans
-at-risk variable pay plans
© 2005 Pearson Education Canada Inc., Toronto, Ontario

12. Organization-Wide Incentive Plans
Scanlon Plan
-engages many or all employees in a common
effort to achieve a company’s productivity objectives
-any resulting incremental cost-savings shared
among employees and the company
© 2005 Pearson Education Canada Inc., Toronto, Ontario

13. Organization-Wide Incentive Plans
Gainsharing Plans – Success Factors
Cooperation between management and labour
Joint development of the plan
Effective communication
Clear guidelines regarding plan changes
Setting achievable goals
© 2005 Pearson Education Canada Inc., Toronto, Ontario

14. Developing Effective Incentive Plans
When to Use Incentives
-units of output can be measured
-clear relationship between employee effort
and quantity of output
-standardized job, regular workflow with
few/consistent delays
-quality less important than quantity
© 2005 Pearson Education Canada Inc., Toronto, Ontario

15. Developing Effective Incentive Plans
Principles for Effective Implementation (1 of 2)
-pay for performance
-link incentives to career development and
challenging opportunities
-link incentives to measurable competencies
© 2005 Pearson Education Canada Inc., Toronto, Ontario

16. Developing Effective Incentive Plans
Principles for Effective Implementation (2 of 2)
-match incentives to the culture of the organization
-keep group incentives clear and simple
-overcommunicate
-remember greatest incentive is the work itself
© 2005 Pearson Education Canada Inc., Toronto, Ontario

17. Developing Effective Incentive Plans
Why Incentive Plans Don’t Work
Performance pay cannot replace good managers
Firms get what they pay for
Pay is not a motivator
Rewards can rupture relationships
Rewards may undermine responsiveness
© 2005 Pearson Education Canada Inc., Toronto, Ontario

18. Developing Effective Incentive Plans
Employee Recognition Programs
Lack of recognition and praise
is the #1 cause of
employee turnover
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19. Developing Effective Incentive Plans
Employee Recognition Programs
Objectives
-show support for employees
-enhance employees’ attitudes to the company
-increase productivity
© 2005 Pearson Education Canada Inc., Toronto, Ontario

20. Developing Effective Incentive Plans
Employee Recognition Programs
Cost-effective -> praise and modest gifts
Important communication tool
© 2005 Pearson Education Canada Inc., Toronto, Ontario