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FINANCIAL INCENTIVES

LEARNING OBJECTIVES
Understand the main incentives for operations employees Understand the main incentives for managers and executives Understand the pros and cons of incentives for salespeople Most popular variable pay plans Steps in developing effective incentive plans Understand employees benefits and services

MONEY AND MOTIVATION


Incentives motivate workers Taylor standardized a fair days work Which led to scientific management movement Which in turn led to modern day HR practices

PERFORMANCE AND PAY


Competition, shareholder value, and turbulence Business need an edge QUESTION: WHAT THE EDGE IS? Pay attention: study showed business turbulence was offset onto managers by using variable pay.

TYPES OF INCENTIVE PLANS


Individual: income over and above base salary to individual employees who meet specific performance standards Group: pay all members when the group or team collectively meets its performance standards Profit sharing: plans are generally organization-wide, provide all or most employees with share of companys profits in a specified period

TYPES OF INCENTIVES.. CONTD.


Employee group: such plans are for operating employees, sales employees or managers Variable pay:

INCENTIVE FOR OPERATIONS EMPLOYEES


Piecework: pay system 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 Straight piecework: plan in which a person is paid a sum for each item he or she makes or sells, with a strict proportionality between results and rewards

INCENTIVES FOR OPERATIONSCONTD.


Standard hour plan: plan by which a worker is paid a basic hourly rate Guarantee minimum wage: plan in which a worker is paid extra percentage of his or her base rate for production exceeding the standard per hour or per day Can create quality problems: people work harder, but created quality problems

INCENTIVES FOR OPERATIONSCONTD.


To counter quality problems organization go for Team or group incentive plans: - All members receive the pay earned by the highest producer - Members receive pay equal to the average pay earned by the group - All members receive the pay earned by the lowest producer

INCENTIVES - MANAGERS AND EXECUTIVES


The annual bonus: Aimed at motivating short term performance with three issues to consider when awarding them. They are: - Eligibility : based on job level and salary - Fund size : use a formula - Individual awards : based on performance

INCENTIVES- MANAGERSContd.
Managers performance bonus: - Bonus for managers is either individual or corporate performance based on both - Split it with part based on individual performance rest on corporate performance - Never give outstanding performers too little - Never give poor performers normal awards

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