Human Resource

Management
ELEVENTH EDITION
1
GARY DESSLER

Part 4 | Compensation

Chapter
12
Pay for Performance and
Financial Incentives

2008 Prentice Hall, Inc. PowerPoint Presentation by Charlie Cook

All rights reserved. The University of West Alabama
After studying this chapter, you should be able to:

1. Discuss the main incentives for individual employees.

2. Discuss the pros and cons of incentives for
salespeople.
3. Name and define the most popular organizationwide
variable pay plans.
4. Describe the main incentives for managers and
executives.
5. Outline the steps in developing effective incentive
plans.

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Motivation, Performance, and Pay
Incentives
Financial rewards paid to workers whose production
exceeds a predetermined standard.

Frederick Taylor
Popularized scientific management and the use of
financial incentives in the late 1800s.
Systematic soldiering
Fair days work

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 Employee Incentive Plans

Individual Employee Incentive

and Recognition Programs

Sales Compensation
Programs

Pay-for-Performance Team/Group-based Variable

Pay Programs
Plans
Organizationwide Incentive
Programs

Executive Incentive
Compensation Programs

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Incentives for Salespeople
Salary Plan
Straight salaries
Best for: prospecting (finding new clients), account
servicing, training customers salesforce, or participating in
national and local trade shows.
Commission Plan
Pay is a percentage of sales results.
Keeps sales costs proportionate to sales revenues.
May cause a neglect of nonselling duties.
Can create wide variation in salespersons income.
Likelihood of sales success may be linked to external factors
rather than to salespersons performance.
Can increase turnover of salespeople.

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Incentives for Salespeople (contd)
Combination Plan
Pay is a combination of salary and commissions,
usually with a sizable salary component.
Plan gives salespeople a floor (safety net) to their
earnings.
Salary component covers company-specified service
activities.
Plans tend to become complicated, and
misunderstandings can result.

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Specialized Combination Plans
Commission-plus-Drawing-Account Plan
Commissions are paid but a draw on future earnings
helps the salesperson to get through low sales
periods.
Commission-plus-Bonus Plan
Pay is mostly based on commissions.
Small bonuses are paid for directed activities like
selling slow-moving items.

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Team/Group Incentive Plans
Team (or Group) Incentive Plans
Incentives are based on teams performance.

How to Design Team Incentives

Set individual work standards.
Set work standards for each team member and then
calculate each members output.
Members are paid based on one of three formulas:
All receive the same pay earned by the highest producer.
All receive the same pay earned by the lowest producer.
All receive the same pay equal to the average pay earned
by the group.

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Team/Group Incentive Plans (contd)
Pros
Reinforces team planning and problem solving
Helps ensure collaboration
Encourages a sense of cooperation
Encourages rapid training of new members

Cons
Pay is not proportionate to an individuals effort
Rewards free riders

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Organizationwide Incentive Plans
Employee Stock Ownership Plan (ESOP)
A firm annually contributes its own stockor cash
(with a limit of 15% of compensation) to be used to
purchase the stockto a trust established for the
employees.
The trust holds the stock in individual employee
accounts and distributes it to employees upon
separation from the firm if the employee has worked
long enough to earn ownership of the stock.

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 Gainsharing Plans

Scanlon Plan

Philosophy Sharing of
Involvement
of Identity Competence Benefits
System
Cooperation Formula

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At-Risk Variable Pay Plans
Put some portion of the employees
weekly pay at risk.
If employees meet or exceed their goals,
they earn incentives.
If they fail to meet their goals, they forgo
some of the pay they would normally have
earned.

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Incentives for Managers and Executives
Short-Term Incentives: The Annual Bonus
Plans that are designed to motivate short-term
performance of managers and are tied to company
profitability.

Issues in Awarding Bonuses

Eligibility basis

Fund size basis

Individual awards

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 KEY TERMS

financial incentives merit pay (merit raise)

fair days work team or group incentive plan
scientific management organization wide incentive plans
expectancy profit-sharing plan
instrumentality employee stock ownership plan (ESOP)
valence Scanlon plan
behavior modification gainsharing plan
variable pay at-risk variable pay plans
piecework annual bonus
straight piecework stock option
standard hour plan golden parachutes

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