HRM10eChap13- Variable Pay Executive Compensation
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Transcript of HRM10eChap13- Variable Pay Executive Compensation
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Human Resource
ManagementTENTH EDITON
2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentationby Charlie Cook
Variable Pay and
Executive Compensation
Chapter 13
SECTION 4Compensating
Human
Resources
Robert L. Mathis John H. Jackson
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2002 Southwestern College Publishing. All rights reserved. 132
Learning Objectives
After you have read this chapter, you should beable to:
Define variable pay and give examples of threetypes of variable pay.
Identify four guidelines for successful incentiveprograms.
Discuss three types of individual incentives.
Explain three different way that sales employeestypically are compensated.
Identify key factors that must be addressed whenusing team variable pay plans.
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2002 Southwestern College Publishing. All rights reserved. 133
Learning Objectives (contd)
Discuss why gainsharing, profitsharing, andemployee stock options have grown asorganizational incentive plans.
Identify the components of executive compensation
and discuss criticisms of executive compensationlevels.
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2002 Southwestern College Publishing. All rights reserved. 134
Variable Pay: Incentives for Performance
Variable Pay Systems Service Pay Systems
Some jobs contribute more to theorganization than others.
Time spent is the primarymeasure of employee contribution
Some people perform better than
others.
Length of service is the primary
differentiating factor amongpeople.
Employees who perform bettershould receive morecompensation.
Contributions are recognizedthrough different amounts of basepay.
A portion of some employeestotal compensation should becontingent on performance.
Apportioning rewards based onindividual performance isconsidered to be divisive.
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Types of Variable Pay Plans
Figure 131
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Factors Affecting Variable Pay Plans
Does the plan fit
the organization?
Are the right behaviors
encouraged by the plan?
Is the plan being
administered properly?
Variable Pay
Plan Success
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Factors fo r
Successfu l
Variable Pay
Plans
Figure 132
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Individual Incentives
IndividualismStressed in
OrganizationalCulture
Identification ofIndividual
Performance
IndependentWork
IndividualCompetitiveness
Desired
IndividualIncentive Pay
Plans
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Piece-Rate Systems
Straight Piece-Rate Systems Wages are determined by multiplying the number
of pieces produced by the piece rate for one unit.
Differential Piece-Rate Systems
Employees are paid one piece-rate for unitsproduced up to a standard output and a higherpiece-rate wage for units produced over thestandard.
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Bonuses and Special Incentive Programs
BonusA one-time payment that does not become part of
the employees base pay.
Awards
Cash or merchandise used as an incentive reward.
Recognition Awards
Recognition of individuals for their performance orservice to customers in areas targeted by the firm.
Service Awards
Rewards to employees for lengthy service with anorganization.
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Sources o f Bonuses
Figure 133
Source: Kathryn F. Clark, Incentives Increase But Competitive Base Salary Key in
Talent Race, Human Resource Executive, June 2, 2000, 30. Used with permission.
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Different Bases for Sales Incentives, In Order o f Use
Figure 134
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Sales Compensation Plans
Salary OnlyAll compensation is paid as a base wage with no
incentives.
Commission
Straight Commission Compensation is computed as a percentage of sales in
units or dollars.
Draw system make advance payments against future
commissions to salesperson.
Salary Plus Commission or Bonus Compensation is part salary for income stability and
part commission for incentive.
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Why Organizat ions Establ ish Team Pay Plans
Figure 135
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Group/Team-Based Variable Pay
Determining
Individual
Rewards
Timing of
Team Incentives
Deciding theAllocation of
Rewards
Distributing
Team
Incentives
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Condi t ions fo r Successfu l Team Incent ives
Figure 136
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Gainsharing
Gainsharing The sharing with employees of greater-than-
expected gains in productivity.
Alternatives for rewards distribution:
A flat amount for all employees Same percentage of base salary for all employees
Percentage of the gains by category of employees
A percentage based on individual performance against
measures
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Profit Sharing
Profit SharingA system to distribute a portion of the profits of the
organization to employees.
Primary objectives:
Improve productivity Recruit or retain employees
Improve product/service quality
Improve employee morale
Drawbacks Disclosure of financial information
Variability of profits from year to year
Profit results not strongly tied to employee efforts
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Profi t-Sharing Plan Framewo rk Cho ices
Figure 137
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Employee Stock Ownership Plans (ESOPs)
Employee Stock Ownership PlansA plan whereby employees gain stock ownership in
the organization for which they work.
ESOP Advantages
Favorable tax treatment for ESOP earnings Employees motivated by ownership in the firm
ESOP Disadvantages
Retirement benefit is tied to the firms performance
Management tool to fend off hostile takeoverattempts.
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U.S. CEO Remuneration
Figure 138Source: The Economist, May 8, 2000, 16.
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Execu t ive Compensat ion Components
Figure 139
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Common Execut ive Perks
Figure 1310
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Arguments
in the
Execut ivePay Debate
Figure 1311