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    Pay For Performance AND Financial Incentives

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    unnu123
    This document discusses various types of pay for performance and financial incentive plans that can be used to motivate employees. It describes intrinsic and extrinsic motivation factors and theories like Maslow's hierarchy of needs, expectancy theory, and self-determination theory. Common incentive plans discussed include individual, team, sales, and organization-wide variable pay plans like profit sharing and ESOPs. Both the advantages and disadvantages of different incentive approaches are considered.

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    Pay For Performance AND Financial Incentives

    Uploaded by

    unnu123
    91 views22 pages
    This document discusses various types of pay for performance and financial incentive plans that can be used to motivate employees. It describes intrinsic and extrinsic motivation factors and theories like Maslow's hierarchy of needs, expectancy theory, and self-determination theory. Common incentive plans discussed include individual, team, sales, and organization-wide variable pay plans like profit sharing and ESOPs. Both the advantages and disadvantages of different incentive approaches are considered.

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    This document discusses various types of pay for performance and financial incentive plans that can be used to motivate employees. It describes intrinsic and extrinsic motivation factors and theories like Maslow's hierarchy of needs, expectancy theory, and self-determination theory. Common incentive plans discussed include individual, team, sales, and organization-wide variable pay plans like profit sharing and ESOPs. Both the advantages and disadvantages of different incentive approaches are considered.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    91 views22 pages

    Pay For Performance AND Financial Incentives

    Uploaded by

    unnu123
    This document discusses various types of pay for performance and financial incentive plans that can be used to motivate employees. It describes intrinsic and extrinsic motivation factors and theories like Maslow's hierarchy of needs, expectancy theory, and self-determination theory. Common incentive plans discussed include individual, team, sales, and organization-wide variable pay plans like profit sharing and ESOPs. Both the advantages and disadvantages of different incentive approaches are considered.

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    of 22

    12.

    PAY FOR PERFORMANCE AND FINANCIAL INCENTIVES

    MOTIVATION, PERFORMANCE, AND PAY


    Incentives
    Financial rewards paid to workers whose production exceeds a predetermined standard

    Frederick Taylor

    Systematic soldiering: the


    tendency of employees to work at the slowest pace possible and to produce at the minimum acceptable level

    Law of individual differences


    The fact that people differ in personality, abilities, values, and needs. Different people react to different incentives in different ways. Managers should be aware of employee needs and fine-tune the incentives offered to meets their needs. Money is not the only motivator.

    Abraham Maslows Hierarchy of Needs


    Five increasingly higher-level needs Lower level needs must be satisfied before higher level needs can be addressed or become of interest to the individual.

    Needs and Motivation

    Maslows hierarchy of needs

    Intrinsic Motivation

    Non- financial Rewards

    Financial Rewards

    Hygiene factors

    Motivators
    Motivation to act

    Factors that lead to job satisfaction are different from the factors that lead to dissatisfaction Financial incentives may motivate in the short term but the satisfiers associated with the work (achievement, responsibility, recognition, advancement) have deeper and long lasting effect.

    Edward Deci
    Intrinsically motivated behaviors are motivated by the underlying need for competence and selfdetermination.

    Vrooms Expectancy Theory


    A persons motivation to exert some level of effort is a function of three things: Expectancy: that effort will lead to performance. Have to have the skills to do the job Instrumentality: the connection between performance and the appropriate reward. Goal must be attainable Valence: the value the person places on the reward. Motivation = E x I x V

    Types of Incentive Plans


    Pay-for-performance plans
    Variable pay (organizational focus)
    A team or group incentive plan that ties pay to some measure of the firms overall profitability.

    Variable pay (individual focus)


    Any plan that ties pay to individual productivity or profitability.

    Pay-for-performance plans
    Individual incentive/recognition programs Sales compensation programs Team/group-based variable pay programs Organizationwide incentive programs Executive incentive compensation programs

    Piecework Plans
    The worker is paid a sum (called a piece rate) for each unit he or she produces.
    Straight piecework: A fixed sum is paid for each unit the worker produces under an established piece rate standard. An incentive may be paid for exceeding the piece rate standard. Standard hour plan: The worker gets a premium equal to the percent by which his or her work performance exceeds the established standard.

    Pro and cons of piecework


    Easily understandable, equitable, and powerful incentives Employee resistance to changes in standards or work processes affecting output Quality problems caused by an overriding output focus Possibility of violating minimum wage standards Employee dissatisfaction when incentives either cannot be earned due to external factors or are withdrawn due to a lack of need for output

    Types of Incentive Plans (contd)


    Pay-for-performance plans
    Individual incentive/recognition programs Sales compensation programs Team/group-based variable pay programs Organizationwide incentive programs Executive incentive compensation programs

    Individual Incentive Plans


    Merit pay
    A permanent cumulative salary increase the firm awards to an individual employee based on his or her individual performance.

    Merit pay options


    Annual lump-sum merit raises that do not make the raise part of an employees base salary. Merit awards tied to both individual and organizational performance.

    Incentives for professional employees


    Decisions can be challenging
    These individuals are already well paid and are driven to succeed

    Possible incentives
    Bonuses, stock options and grants, profit sharing Better vacations, more flexible work hours Improved pension plans Equipment for home offices

    Recognition-based awards

    Information technology and incentives


    Enterprise incentive management (EIM) Software that automates the planning, calculation, modeling and management of incentive compensation plans, enabling companies to align their employees with corporate strategy and goals.

    Incentives for Salespeople


    Salary plan
    Straight salaries

    Commission plan
    Pay is only a percentage of sales
    Keeps sales costs proportionate to sales revenues. Can create wide variation in salespersons income. sales success may linked to external factors rather than to salespersons performance. Can increase turnover of salespeople.

    Organizationwide Variable Pay Plans


    Profit-sharing plans
    Cash plans
    Employees receive cash shares of the firms profits at regular intervals.

    Deferred profit-sharing plans


    A predetermined portion of company profits is placed in each employees account under a trustees supervision. Employee stock ownership plan (ESOP)
    A corporation annually contributes its own stock or cash to be used to purchase the stock

    Advantages of ESOPs
    ESOPs help employees develop a sense of ownership in and commitment to the firm, and help to build teamwork. No taxes on ESOPs are due until employees receive a distribution from the trust, usually at retirement when their tax rate is lower. At-risk variable pay plans that put some portion of the employees weekly pay at risk. If employees meet or exceed their goals, they earn incentives. If they fail to meet their goals, they forgo some of the pay they would normally have earned.

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