Dr. Urvashi Sharmacommerce.du.ac.in/web/uploads/e - resources 2020 1st/MBA HRD/Dr.… · What is an...
Transcript of Dr. Urvashi Sharmacommerce.du.ac.in/web/uploads/e - resources 2020 1st/MBA HRD/Dr.… · What is an...
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Dr. Urvashi Sharma
Performance-Linked Pay
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What is a Reward?
A reward is a benefit that is provided in recognition of achievement, service, commendable behavior, etc. A reward is given to an employee only after he / she has provided evidence of his /her positive behavior and achievements. The aim of a reward is to show the employees that their work and effort are valued, and is given as an appreciation for the work already completed, as well as a motivation to keep improving their quality of work. Rewards can be in the form of money or can even be non-monetary in nature. Monetary rewards may be in the form of salary increments, bonuses, etc. Examples of non-monetary rewards include promotions, paid time off, flexible work hours, etc.
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What is an Incentive?
Incentives are benefits that are promised to employees to motivate them to achieve their best and to improve their behavior, productivity, and output continuously. Incentives are granted to workers that perform below par, and to encourage them to achieve the desired level of performance or set goal. An example of an incentive would be, ―rewarding a $200 gift certificate to an employee achieving 30% increase in sales for the month.‖ Examples of other incentives include sales commissions, employee stock options, better offices and work spaces, higher allowances, etc. The aim of an incentive is to motivate and encourage employees to achieve desired performance, efficiency, and levels of output.
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What do incentive mean?
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)
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WHAT DO YOU MEAN BY INCENTIVE WAGE PLANS?
Incentive wage systems are considered to be incentive management systems.
Traditionally, incentive wage plans have been thought of as payment plans based on the output of the employee.
But incentive wage systems of today go far beyond the simple single objective of payment for output.
Now-a-days incentive wage systems are so designed that the employee feels satisfied intrinsically as well as extrinsically.
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FUNDAMENTAL OBJECTIVES OF WAGE INCENTIVE PLANs
A set of well-defined and communicated incentive
wage system aims at rewarding the employee more
effectively for his efforts and services rendered to the
firm than the simple base pay system. It aims at
bringing congruency between the objectives of
management and those of the employees.
The objectives of incentive wage systems have been
made clear by McGregor (1960) when he defines
them as “ A FORMAL METHOD PROVIDING AN
OPPORTUNITY FOR EVERY MEMBER OF THE
ORGANISATION TO CONTRIBUTE HIS BRAIN
AND CREATIVITY AS WELL AS HIS PHYSICAL
EFFORT TO THE IMPROVEMENT OF
ORGANISATIONAL EFFECTIVENESS…..”
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Incentive wage systems provide the
opportunity for development to each and
every employee by linking pay to efforts for
development.
They aim at increasing the pride of the worker
in himself and his job.
They also attempt at seeing that each
employee gets paid accurately for what he
does, in direct proportion.
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Benefits
To business
retain existing employees
increase their motivation, morale
and loyalty
boost productivity
link individual and business
performance
focus employees on achieving
targets
build teamwork
Indirect benefit, e g free health
assessments may reduce absences.
To employees
enhance the quality of working
life
reward employee efforts
add value to the employment
contract
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SYSTEMS OF WAGE PAYMENT & INCENTIVES :
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INDIVIDUAL INCENTIVES PLANS:
Individual payment schemes include
payment by results, piecework and bonuses,
work measurement (including measured day
work) and appraisal and performance related
pay
Many sectors of employment use pay
systems that contain direct links to
individual performance and results.
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1. BASED ON TIME:
a) Halsey Plan
b) Rowan Plan
c) Emerson Plan
d) Bedeaux Plan
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HALSEY PREMIUM PLAN :
The slow worker is paid time wages and efficient worker is paid some bonus in addition to the time wages ( normally 50% of wages for the time saved).
For example:
Standard time(s) = 10 hours
Rate (R) =Rs 4 per hour
Time Taken (T)= 6 hours
Rate of bonus (P)=50% of time saved
TOTAL WAGES = T X R+(S-T)XP X R
=6X4+(10-6) X 50%X4
= Rs 32.00
In halsey plan, the employee gets 33.33% benefit of wages for the time saved.
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ROWAN BONUS PLAN
It is similar to halsey plan except the calculation of bonus.
Here bonus is calculated by taking proportion of time saved
to standard time.
EARNINGS=HOURS WORKED x RATE PER
HOUR+(TIME SAVED /STANDARD
TIME x HOURS WORKED x RATE
PER HOUR)
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BEDEAUX PLAN
In this plan, standard time is expressed in minutes and are known as Bs.
Bonus is paid to the worker at the rate of 75% of the waged for time saved, the rest 25% goes to the foreman.
S= standard time
T= actual time
R= rate of wages
Total wages (w)= S x R + 75% of value of time
saved
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EMERSON PLAN
A minimum wage is guaranteed to the workers. Conditions of work are standardized and a standard output is fixed which is to be completed within a specified time .
The pattern of incentive under this plan is as under:
if workers output is:
# less than 66.7% of the standard, he gets time wages.
# 66.67% to 80% of the standard, bonus payable is 4%.
# more than 80% till 90%, bonus is 10%.
# between 90% to 100% bonus is 20%.
After 100% 1 per cent bonus is given for every additional 1% efficiency.
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2. BASED ON PRODUCTIVITY:
a) TAYLOR PLAN
b) GANTT TASK & BONUS WAGE PLAN
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TAYLOR PLAN
Standard task is established. Two piece rates
are laid down.
The lower rate for those workers who fail to
complete the standard task within the
allotted time and higher rate for those who
complete the task within or less than the
standard time.
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GANTT TASK & BONUS WAGE PLAN
DEVELOPED BY HENRY L. GANTT.
A worker who fails to complete the task
within the standard time receives wage for
actual time spent at the specified rate.
Workers who achieve or exceed the standard
get extra bonus varying between 20% to 50%
of the hourly rate for the time allowed for the
task.
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Group Incentives
Compensation system which links pay to a
group's combined performance measured by
reduction in costs, increase in productivity,
progress in attaining firm's objectives, etc.
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Scanlon plan
It was developed by Joseph Scanlon of the
United Steelworkers of America in 1927.
It has two main aspects:
Adopting a measure for increased productivity.
Sharing the gain accrued from that increased
productivity.
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There are four degrees of cooperation in this plan:
Information cooperation by gathering
information.
Advisory cooperation through the process of
consultation.
Constructive cooperation by making
suggestions for improvement.
Joint union-management decision making.
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Scanlon plan today have 4 principles:
Identity
Participation
Equity
Managerial competence
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Rucker plan
It was developed by Eddy Rucker Nickels
Company.
The philosophical base of this plan is same
that of Scanlon plan but a major difference is
the base used to establish a measure of
productivity.
It is the value added by manufacture for each
dollar of input of payroll costs.
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The procedure used is:
Identify a base period that provides data that will
be valid and useful for establishing standards.
Generate data
Sales Value of Production (SVP).
Cost of Materials, supplies, services, etc.
(COM).
Cost of Labor (COL).
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Using these data, make the following standards:
Value added (VA)= SVP-COM.
Labour Contribution to VA (LCVA)=COL/VA.
Economic Productivity Index
(EPI)=1.00/LCVA.
Expected Value of Production
(EVP)=EPI*COL.
Labour’s contribution to savings are deposited
in a bonus pool with two-thirds of the bonus
paid to the employees monthly
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Individual Incentives
Under a system of individual incentives, all or a portion of an individual’s pay is tied to their performance.
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Group Incentives
Improve Organizational Performance
Organizational Measures
Measured Periodically
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Team / Group Incentive Plans
Gain-Sharing Plans
Profit Sharing Plans
Earnings-at-Risk Plans
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Principal Pay Strategies
1. Performance-related Pay:-
Pay systems where the pay received by the employee is varied according to the work output achieved.
In addition to payment-by-results it also includes merit-based approaches.
It consists of three sequential stages which are:-
Measurement needs
System of measuring individual employee performance against those measures
Assessment of performance
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How to make PRP effective?
Integrating with performance management by managers who have the willingness and the skill to manage.
Trust between the manager and employee
Measurable work activity with validity and reliability
Systematic assessment of performance.
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Variable Pay
A pattern where the employer divides an employee’s
salary into two parts—fixed and variable, whereby
the fixed part of the salary is credited to an
employee every month and the variable aspect
follows as per the goals and targets achieved.
Variable pay is:
not a part of salary
not guaranteed
based on individual, group, or organizational
performance.
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Variable Pay: Incentives for Performance
Variable
Pay Assumptions
Some people perform better
and are more productive than
others
Better performing employees
should receive more
compensation
Some jobs contribute more
to organizational success
than others
Part of compensation should
be tied directly to
performance and results
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Successful Variable Pay Plans
Effective Incentive Plans
Plan Fits the
Organization
Plan Rewards the
Appropriate
Actions
Plan effectively
Administered
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Common purposes of variable pay include:-
rewarding individual performance,
rewarding group performance (e.g., completing a project, meeting organizational objectives, reducing costs),
encouraging employees to increase productivity, and
controlling payroll costs.
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Why Variable Pay Plans Fail
Plan incentives are
not seen as desirable
Plan doesn’t reward
doing a good job
Plan doesn’t motivate
Plan rewards
teams/groups rather
than individuals
Plan doesn’t increase
base pay
Employees’
View of Variable Pay
Plan
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Benefits of Variable pay plan
Encourage team-work
Promotes open lines of communication
It aligns rewards with key business priorities
Links compensation with profitability
Provides job stability
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Types of Variable Pay Plans
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Individual Incentives
• Piece-Rate Systems
–Straight piece-rate system
–Differential piece-rate system
• Bonus
• ―Spot‖ Bonuses
• Special Incentive Programs
–Performance awards
–Recognition awards
–Service awards
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Why Organizations Establish Variable Pay Plans for Groups/Teams
Group/Team-
Based Variable
Pay Plans
Improve
productivity
Tie pay to team
performance
Improve
customer service
or production
quality
Increase
employee
retention
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Design of Group/Team Incentive Plans
Group/Team Incentive Plan
Issues
Distribution of
Group/Team
Incentives
Timing of
Group/Team
Incentives
Decisions About
Group/Team
Incentive
Amounts
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Group/Team Incentives
• Distributing Rewards – Same-size reward for each member
– Different-size reward for each member
• Problems with Group/Team Incentives – Rewards in equal amounts may be perceived as ―unfair‖
by employees who work harder, have more capabilities, or perform more difficult jobs.
– Group/team members may be unwilling to handle incentive decisions for co-workers.
– Many employees still expect to be paid according to individual performance.
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Conditions for Successful Group/Team Incentives
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Organizational Incentives
Primary Objectives
• Increase productivity and
organizational performance
• Attract or retain employees
• Improve product/service
quality
• Enhance employee morale
Drawbacks
• Disclosure of financial
information
• Variability of profits from year
to year
• Profit results not strongly tied
to employee efforts
Profit Sharing
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Framework Choices for a Profit-Sharing Plan
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Employee Stock Plans
• Stock Option Plan
– A plan that gives employees the right to
purchase a fixed number of shares of
company stock at a specified price for a
limited period of time.
• If market price of the stock is above the
specified option price, employees can
purchase the stock and sell it for a profit.
• If the market price of the stock is below the
specified option price, the stock option is
―underwater‖ and is worthless to
employees.
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Employee Stock Plans
• Employee Stock Ownership Plan (ESOP) – A plan whereby employees gain significant stock
ownership in the organization for which they work.
– Advantages
• Favorable tax treatment for ESOP earnings
• Employees motivated by their ownership stake in
the firm
– Disadvantages
• Retirement benefit is tied to the firm’s future
performance
• Management tool to fend off hostile takeover
attempts.
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Executive Compensation
Executive Salaries
Executive Benefits
Executive Perquisites (Perks)
Annual Executive Incentives and Bonuses
Performance Incentives: Long Term vs. Short Term
Elements of Executive
Compensation
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Forms of Performance-Linked Reward System
Merit pay
Skill-based pay
Bonus schemes
Team rewards
Organization-based schemes
Annual bonus
Gain-sharing
Profit-Sharing
EVA
Stock Options
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Merit-based Pay or(Individual Performance-related pay)
It involves the following steps:-
– Determination of result-oriented merit rating procedures.
– identifying job factors and their relative importance.
– Formulation of a scale of reward.
– Communication of the basis of monetary reward
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Skill-based Pay
Links pay to the level of schemes used in the job and application of additional skills by the persons carrying the job.
It can take two forms :-
Conventional
Progressive
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Bonus Schemes
Relates the pay or part of the pay received by the employee to the various aspects like-
— number of items they produce or process
—Time they take to do a certain amount of work
Types :-
—Individual piece work
—Work measure schemes
—Measured day work
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Individual Incentive Plans
Advantages
Rise in productivity
Lower production costs
Increases earnings of workers
Disadvantages
Conflict may arise
Resistance by the employees towards new technology
Increased turnover of employees
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Team Rewards
Gain-sharing Plans:- a formula-based organisation or factory-wide bonus plan, which provides for employees to share in the financial made by a company as a result of its improved performance.
It is different from profit-sharing plans.
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Gain-sharing plans
Advantages
a. Enhancement in coordination, teamwork, and sharing of knowledge
b. Social needs are recognised
c. Acceptance of change
d. Employees produce ideas an efforts
e. Focus on cost-saving
Disadvantages
a. Do not pay more for better performance
b. Lesser motivation
c. Pays bonus even when the is not earning profits
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Profit-sharing Plan
Plans which require a designated profit target to be met before any payouts occur.
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Advantages Disadvantages
Positive impact on organisation and individual performance
Cooperation is a desired behaviour
Increased participation of employees
Line-of-sight may be lessened
Increased turnover
Increased compensation risk
Group Incentive Plans
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Organization-based Schemes
Annual bonus
Goal-sharing plan
Profit-sharing plan
ESOP
EVA
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Questions???????
Gain-sharing v/s profit-sharing???
Variable pay?
Inividual piece work?
Merit-Pay – category????
Types of variable pay???
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THANK YOU