NDBF - RemunerationLim Sei Kee @ cK
Variable Pay: Incentives for PerformanceVariable Pay Systems Service Pay Systems
Some jobs contribute more to the organization than others.
Time spent is the primary measure of employee contribution
Some people perform better than others.
Length of service is the primary differentiating factor among people.
Employees who perform better should receive more compensation.
Contributions are recognized through different amounts of base pay.
A portion of some employees’ total compensation should be contingent on performance.
Apportioning rewards based on individual performance is considered to be divisive.
Factors for Successful Variable Pay Plans
Individual Incentives
IndividualismStressed in
OrganizationalCulture
Identification ofIndividual
PerformanceIndependent
Work
IndividualCompetitiveness
Desired
Individual Incentive Pay
Plans
Piece-Rate SystemsStraight Piece-Rate Systems
Wages are determined by multiplying the number of pieces produced by the piece rate for one unit.
Differential Piece-Rate SystemsEmployees are paid one piece-rate for units
produced up to a standard output and a higher piece-rate wage for units produced over the standard.
Bonuses and Special Incentive ProgramsBonus
A one-time payment that does not become part of the employee’s base pay.
AwardsCash or merchandise used as an incentive reward.
Recognition AwardsRecognition of individuals for their performance or
service to customers in areas targeted by the firm.Service Awards
Rewards to employees for lengthy service with an organization.
Sales Compensation PlansSalary Only
All compensation is paid as a base wage with no incentives.
CommissionStraight 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.
Why Organizations Establish Team Pay Plans
Group/Team-Based Variable PayDetermining
Individual Rewards
Timing ofTeam Incentives
Deciding the Allocation of
Rewards
DistributingTeam
Incentives
Conditions for Successful Team Incentives
GainsharingGainsharing
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
Profit SharingProfit Sharing
A 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
Profit-Sharing Plan Framework Choices
Common Executive Perks
BenefitsBenefit
An indirect compensation given to an employee or group of employees as a part of organizational membership.
Strategic Perspectives on BenefitsBenefits absorb social costs for health care and
retirement.Benefits influence employee decisions about
employers (e.g., recruitment and retirement).Benefits are increasingly seen as entitlements.Benefit costs are about 40% of total payroll
costs.
How the Benefit Dollar Is Spent
Benefit Needs AnalysisBenefit Needs Analysis
A comprehensive look at all aspects of benefits. How much total compensation? What part of total compensation should benefits
comprise? What expense levels are acceptable for each
benefit? Which employees should get which benefits? What are we getting in return for the benefit? How will offering benefits affect turnover,
recruiting, and retention of employees? How flexible should the benefits package be?
Types of Benefits
Other Benefits
Benefits
Relocation Expenses
Life, Disability, Legal Insurances
Educational Assistance
Social and Recreational
Family-Oriented Benefits
Family-Care Benefits
Credit Unions Purchase Discounts
Stock Investment
Time-Off BenefitsHoliday Pay
EligibilityVacation Pay
Leaves of AbsenceFamily LeaveMedical and Sick LeavePaid Time-Off (PTO)
PlansMilitary LeaveElection LeaveJury-duty LeaveFuneral Leave
Typical Division of HR Responsibilities:Benefits Administration