Chapter 12- Pay-for-Performance and Financial Incentives Questions PDF

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Chapter 12: Pay-for-Performance and Financial Incentives What is fixed pay? Compensation that is independent of the performance level of the individual, group, or organization. It includes base pay, allowances What is variable pay? Any plan that ties pay to productivity or profitability. May be in addition to base pay What are the different types of incentive plans? 

Operations employees

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Senior managers and executives

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Salespeople

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Other managers and professional employees

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Organization-wide

What is merit pay (or merit raise)? 

Any salary increase that is awarded to an employee based on individual performance

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Usually an ongoing increase to base pay

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Link to performance acts as motivator

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Success depends on validity of performance appraisal system

What is employee share purchase/stock ownership plan? 

A plan whereby a trust is established to hold shared of company stock purchased for or issued to employees

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The trust distributes the stock to employees as prescribed by the plan

What is profit sharing plans? A plan whereby most or all employees share in the company’s profits What is gainsharing plans? 

An incentive plan that engages employees to achieve productivity objectives and share the gains

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It works in stable organizations with predicable goals and measures of performance

What is piecework plans? A system of pay based on the number of items processed by each individual worker in a unit of time, such as items per hour or items per day What are the 3 types of piecework plans? 

Straight piecework plans o A set of payment for each piece produced or processed

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Guaranteed piecework plan o The minimum hourly wage plus an incentive for each unit produced above a set number of units per hour

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Differential piecework plan ‘ o A plan by which a worker is paid a basic hourly rate plus an extra percentage of their base rate for production exceeding the standard per hour or per day

What are the advantages of piecework plans? 

They are simple

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They appear equitable

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They are directly tied to performance

What are the disadvantages to piecework plans? 

Some employers arbitrarily raise standards

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It is difficult to adjust for changes in hourly rates

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Resistance to revising the standard

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Quality may be compromised

What are team or group incentive plan? A plan in which a production standard is set for a specific work group and its members are paid incentives if the group exceeds the production standard How to implement team or group incentives? 

Set standards for each member of the group o Members paid based on highest performer o Members paid based on lowest performer

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Set standards for the group as a whole o All members paid equally

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Use a group defined measure of performance

What are the considerations for developing an effective incentive plans? 

Performance pay cannot replace good management

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Firms get what they pay for

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“Pay is not a motivator”

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Rewards rupture relationships

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Rewards may undermine responsiveness

How to implement incentive plans? 

Pay for performance

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Link incentives to activities that engage employees

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Link incentives to measurable, valuable competencies

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Match incentives to organizational culture

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Keep group incentives clear and simple

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6. Over communicate

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7. The greatest incentive is the work itself...