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Presentation on

“Incentive pay system”

05/02/2023

Presented to: “MAM BISMA RAJA”

PRESENTED BY:Ahmad Kamal.Hina Tahir.M .Hanif.

M.COM (II)

Incentives pay system.

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Learning outcomes• Incentive pay system?• What are incentives?• Types of incentives• Individual incentives• Group incentives• Variable Pay

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Incentive pay system?“Definition” “Pay plans designed to relate pay directly to

performance or productivity; often used I

conjunction with a base wage and salary system”

What is incentive?• In the words of Burack & Smith,

"An incentive scheme is a plan or program to motivate individual or group performance.

An incentive program is most frequently built on monetary rewards (incentive pay or a monetary bonus), but may also include

a variety of non-monetary rewards or prizes”.

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• Consists of both ‘monetary’ & ‘non-monetary’ elements.

• Timing, accuracy & frequency of incentives• Proper communication of the incentive plan to the

employees

features of an incentive plan

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Requirement of incentive plans

• The first concerns the procedures and methods used to appraise employee performance.

(A key issue in performance measurement is the degree of trust in management. If the employees distrust management, it is almost impossible to establish a sound performance appraisal system).

• The second requirement is that the incentive must be based on performance.

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Types of incentive plans

• Individual incentives.• Group incentives.

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Individual incentive• individual incentives are usually based on the

performance of the individual as opposed to those of the group or organization. However, at managerial levels, individual incentives are often based on the performance of the manager’s work unit.

Types of individual incentive

• Piece Rate Plans• Plans Based on Time Saved• Plans Based on Commissions• Individual Bonuses• Suggestion Systems• Incentives for Managerial Personnel

Piece Rate Plans

Piece rate plan devised by Frederick W. Taylor that,

“ Pays one rate for all acceptable units produced up to some standard and then a higher rate for all pieces produced if the output exceeds the standard”

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Plan based on time saved

Incentive plans based on time saved give an employee bonus for reaching a given level of production or output in less than the standard time.

• Plan based on commission plan Incentive plan that rewards employees, at least in part, based on their sales

volume.

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Plan based on individual• Bonus Reward that is offered on a one-time basis for high

performance.• merit pay increase Reward based on performance but perpetuated year

after year.

Suggestion system “Systems that usually offer cash incentives for employee suggestions that result in the either increased profits or reduced costs”

Incentive for managerial performance

• Annual Bonus• Long-Term Performance Plans• Stock Options for Managerial Personnel1. Annual Bonus: incentive for managerial employees is the annual

cash bonus.

• Long-Term Performance Plans: These plans usually award top executives a set

number of performance units at the beginning of a performance period. The actual value

of the units is then determined by the company’s performance over the performance period, usually from three to five years.

• Stock Options for Managerial Personnel:

Stock option plans are generally designed to give managers an option to buy company stock at a predetermined, fixed price.

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Group incentive Incentives based on group rather

than individual performance. Types of group incentive:1. organization wide incentives.2. Gain sharing.3. Scanlon plan.4. Employee stock ownership plan

Organization wide incentives.

Incentives that reward all members of the organization based on the performance of the entire organization.2. Gain sharing. incentive plans that involve employees in a common

effort to achieve the company’s productivity objectives.

4. Scanlon plan. Organization wide incentive plan that provides employees with a bonus based on tangible savings in

labor costs.5. Employee stock ownership plan. Form of stock option plan in which the organization provides for purchase of its stock by employees at a

set price for a set time period based on the employee’s length of service and salary and the profits of the organization.

Variable pay Variable pay is an approach to compensation that attempts

to reward employees by linking a percentage of their pay to certain performance accomplishments. Explanation: One difference between variable pay programs and most of

the previously described incentive programs is that most variable pay programs make all employees’ pay variable as opposed to the pay of certain groups, such as senior executives or salespeople.

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. A second difference is that many variable pay programs utilize individual, group, and organizational performance measures or some combination of these to determine an individual’s incentive pay.

Con’t

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Do you have any more questions?