1. Pay For Performance and Financial Incentives
Chapter #12
Pay For Performance and Financial Incentives

2. Performance and Pay Not all rewards are equal
70 % of all ee surveyed believed that their pay plans were ineffective
Trends are for more variable rate pay
Shifts business risk to employees

3. Psychological insight
Individual differences
Personality

4. #2 Needs theory (Maslow)
Intrinsic v. extrinsic
5 step hierarchy
Look page #439
Employee preferences for non cash incentives

5. Frederick Herzberg & Edward Deci
Hygiene factors v. motivators
Both say that relying too much on extrinsic motivators is risky
Intrinsic motivators are motivated by drive for competence and self determination

6. #3 Instrumentality and Rewards Expectancy Theory
Valence

7. Frederick Taylor: Scientific Management “One Best Way”
Fair Day’s Work
Quotas
Standards
Inspection and observation

8. Today’s Emphasis… Pay For Performance Again
Studies, Fortune 500 firms and Dupont
More business risk on employees
More mngt pay for performance
More sales incentives
Less base pay

9. Types of Incentive Plans
Variable pay based on performance.
Base pay + one lump sum bonus
Gift certificates.com
Time off

10. Incentives for operations people (actually do work)
Piecework plans
Oldest incentive
Guaranteed base = increased pay for each piece over a standard (base)
Rate busters

11. Short term incentives Annual bonus Three basic issues to consider
Eligibility
Higher up you get more
Fund size
Individual Rewards
IDEAAs program
Mary Kay
Recogiition
EE of the month

12. Long Term Incentives Stock options Right to purchase shares
Idea is that stock value will go up
Not working today
Overseas execs get taxed twice on options
140,00$ bonus + 40,000$ in taxes

13. Incentive for Sales People
Fixed Salary Plan
+ Security – not results oriented
Commission Plans
+ more incentive- neglect other duties
-insecurity, - no sick pay – no vacation pay
- higher turnover
Combination Plans
80% base 20% commission
Best of both worlds
Set Sales Quotas
Give sales incentives

14. Merit Pay Salary increase based upon great performance
Becomes part of base pay
Lump sum merit pay (one time $)

15. Profit Sharing Plans A plan that allow ees to share in firms profits
Cash plans
% of profits
Lincoln incentive plans
$ based upon merit rating of individuals
Deferred profit sharing plans
$ placed in trustee account, $ is there until retirement nd then taxed at lower amount

16. Employee Stock Ownership Plan ESOP
A firm contributes shares of its own stock to a trust. The trust distributes fund to ees upon retirement
Problem too much delay
Firm gets tax deduction
Can also claim income tax deduction
Develops sense of ownership in employees

17. Scanlon Plans Developed by Joe Scanlon l937 Philosophy of cooperation
“WE” attitude ee must understand company profits and losses
Competence from ees
Involvement
Sharing of benefits
As workers reduce costs that are rewarded Proceeds are shared

18. Gainsharing
An incentive that engages employees in a common effort to achieve productivity objectives and share the gains
Same as Scanlon just today’s version