Copyright 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or...

Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning OutcomesImplement a strategic incentive programDetect when and what types of individual

incentives are appropriateDifferentiate how gains may be shared with

employees under different group incentive plans like the Scanlon and Improshare gainsharing systems

2


Learning OutcomesDifferentiate between profit sharing plans

and explain advantages and disadvantages of these programs as an alternative to individual and group incentive systems

Understand how to apply different incentive systems designed for professionals and executives

3


Strategic Reasons for Incentive PlansVariable pay programs: Tying pay to some

measure of individual, group, or organizational performance

Incentive pay plansEstablish a performance threshold for

employees to qualify for incentive paymentsEmphasize a shared focus on organizational

objectives Creates an operating environment supporting

shared commitment

4


Figure 10.1 - Types of Incentive Plans

5


Incentive Plans as Links to Organizational ObjectivesPurpose of incentive plan

Encourages employees to assume ownership of their jobs, thereby improving effort and job performance

Motivates employees to expend more effort than under hourly and/or seniority-based compensation systems

Supports a compensation strategy to attract and retain top-performing employees

6


Requirements for a Successful Incentive Plan Identify important organizational metrics

encouraging employee behaviorInvolve employees

Incentive programs should seem fair to employees

Find the right incentive payoutPayout formulas should be simple and

understandableEstablish a clear link between performance

and payout

7


Individual Incentive Plans

• Straight piecework: Employees receive a certain rate for each unit produced

• Differential piece rate: Employees whose production exceeds the standard amount of output receive a higher rate for all of their work

Piecework

• Sets rates based on the completion of a job in a predetermined standard time

Standard hour plan

• Supplemental to the base wage

Bonus

8


Individual Incentive Plans

• Links an increase in base pay to how successfully an employee performs his or her job

Merit pay

• Awards - Used to recognize productivity gains, special contributions or achievements, and service to the organization

• Recognition - Conduit that shows employees that the company appreciates their efforts, their unique gifts, and their contributions

Incentive awards and recognition

• Performance standards for sales employees are difficult to develop because performance is affected by external factors

• Types - Straight salary plan, straight commission plan, Combination salary and commission plan, and Sales plus bonus plan

Sales incentive

9


Group Incentive Plans - Team CompensationTeam incentive plans: All team members

receive an incentive bonus payment when production or service standards are met or exceeded

Gainsharing incentive plan: Both employees and the organization share financial gains by a predetermined formulaScanlon planImproshare

10


Figure 10.4 - Scanlon Plan Suggestion Process

11


Group Incentive PlansProfit sharing - Employer makes available to all

regular employees, special current or deferred sums based on the organization’s profits

Stock options - Organizations allow employees to buy stocks to increase productivity and assume partnership role in the organizationThis in turn leads to the increase in stock prices

Employee Stock Ownership Plans (ESOPs): Stock plans in which an organization contributes shares of its stock to an established trust for the purpose of stock purchases by its employees

12


Incentives for Professional EmployeesProfessional employees

Motivation is influenced by their increased mobility across companies

Can receive compensation beyond base pay

13


Executive Pay Package

Base salary Short-term

incentives or bonuses

Long-term incentives or stock plans

Benefits Perks

14


Figure 10.5 - Types of Long-Term Incentive Plans

15


Figure 10.5 - Types of Long-Term Incentive Plans

16


Executive Compensation: Ethics and AccountabilityJustification of bonuses

Large financial incentives are a way to reward superior performance

Business competition is pressure-filled and demanding

Good executive talent is in great demandEffective executives create shareholder valueFact of business life, reflecting market

compensation trends

17


Executive Compensation ReformInternal Revenue Service (IRS) makes

executive pay a part of every corporate auditSecurities and Exchange Commission issued

pay disclosure rules requiring companies listed on the New York Stock Exchange and NASDAQ to disclose the true size of their top executive pay packages

18


Executive Compensation ReformFinancial Accounting Standards Board

(FASB) requires stock options to be recognized as an expense on income statements

Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203) was signed into effect giving share holders say on pay Voting shareholders of a company must

ultimately approve of its executive salaries19

Copyright 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or...

Documents

Transcript of Copyright 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or...