PERFORMANCE INCENTIVES

What is incentives?

Why Incentives are Important?

What makes an Incentives plan effective?Basic forms of incentives.

Classification of Incentives Plans

PRESENTATION INCLUDES

What is incentives?

The term INCENTIVES mean, something which encourages a person to do something. Or the “extra financial reward/ motivation”.

Why Incentives are Important?

Incentives are considered beneficial to both employers as well as employees in following ways.Workers are likely to work at their best when they are offered

monetary rewards for good performance.

In the absence of mutual trust between management & workers, an incentives may be viewed as an attempt to improve production/ profit only.

Payment of incentives should be free from bias & established through scientific/ proper work study.

It should be easy to understand & simple to operate so that employee can calculate their own earnings.

It should provide equal opportunity to all workers to earn incentives pay. Plan should be flexible to adopt any changes later on. Payment of incentives should be prompt i.e. as early as possible. It should be adequate to motivate each employees. Every plan should be reviewed periodically.

What makes an Incentives plan effective?

Basic forms of incentives.

Basic forms of incentives

Bonuses Merit Commission for sales people

Salary

plan

Commissi

on plan

Combination of both

BonusIncentive payment that is supplemental to

the base wage for cost reduction, quality improvement, or other performance criteria.

Bonuses

Merit Pay Program (merit raise)Lump-sum Merit Program

Program under which employees receive a year-end merit payment, which is not added to their base pay.

Merit Pay

Merit Pay Guidelines Chart

QUINTILE (POSITION IN RANGE),%

PERFORMANCE LEVEL 1 2 3 4 5

Outstanding (5) 9 9 8 7 6Superior (4) 7 7 6 5 4Competent (3) 5 5 4 3 3Needs improvement (2) 0 0 0 0 0Unsatisfactory (1) 0 0 0 0 0

MERIT PAY GUIDE CHART

Classification of Incentives Plans

Profit sharing Co-partnership Gain-sharing ESOPs  Stock Options

Incentives plans

Output-based

Individual

Time-based

Organization- wide Group

Time-based

Time based incentive plan

– Under time based plan, per hour wage rate is determined & incentives paid on the bases of time saved.

– Time based incentives plane is divided in four different ways.– Hasley plan, Rowan plan, Emerson plan, Bedeuax plan.– This all plan more or less follow same method i.e. (pay bonus on

the basis of timed saved by employee), but with different formula.

Output based incentive plan

– Under output based plan, per piece wage rate is determined & incentives paid on the bases of output produced. i.e. more output in standard time OR standard output in less time.

– For output based incentive following 3 method can be used.– Taylor plan, Merrick plan, Gnatt plan.

Individual

Profit sharing– Profit sharing is an arrangement by which employees receive in

addition to wages, a share is fixed in advance in profit of the enterprise.

– It is an agreement between employer & his employee.– According to International Labour Organization, “Profit-sharing is a

method of industrial remuneration under which an employer undertakes to pay to employee, a share in net profit of the enterprise in addition to regular wages”

Co-partnership– Co-partnership is an extension of profit-sharing.– Under this method worker’s share in company’s profit is paid in the

form of share by which they become entitled to participate in decision-making process.

Organization- wide – 1

Gain-sharing– This method aims at increasing productivity & decreasing labour

cost & sharing the result gains wit employee.– It is based on a mathematical formula which compares a standard

perform with actual performance during given period.– When actual performance exceed the standard performance, shaving

are shared with employees. ESOPs (Employee Stock Option Plans)

– This method is originated in the USA in early 90s.– Under this plan, the eligible employee are allotted company’s share

below the market price.– The term “stoke option” implies the right of eligible employee to

purchase a certain amount of stoke in future at an agreed price.– The eligibility criteria may include length of service, contribution to

the department etc…

Organization- wide – 2

Stock OptionsA stock option is an incentive offered to employees

that want to invest their money into the company stock by purchasing stock with pre-tax money. According to HR Guide, employees that participate in a stock option incentive plan are able to defer paying income tax on the gains realized by their stock purchases until the stock is sold. The company itself does not get any kind of tax break by offering a stock option incentive, but it does reap the benefits of selling more stock.

Organization- wide – 3

Group based or team-based incentives plans reward all team members equally based on overall performance of the team member.

Under group based incentive plan, individual out put can’t be measured.

So team performance is evaluated on the basis of time taken rather than output produced, if team complete their target in well advanced to standard time the team member are eligible for incentives.

Payment to team members may be made in the form of cash bonus or in the form of non-cash reward such as pleasure trip, times off or luxury items.

Team based incentives foster cohesiveness among tem members. Methods for team based incentives plans are

– Preistman’s production plan– Rucker plan– Scalon plan– Town plan and so on…

Group