Incentives Prez

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INDIVIDUAL AND GROUP INCENTIVES

REWARD SYSTEMS – AN OVERVIEW FINANCIAL

NON-FINANCIAL

Direct payments (salaries)

Protection Programmes

Indirect payments (benefits / incentives)

Employee involvement in decision making Recognition Training Opportunities Nurturing and supportive company culture

Performance Appraisal and Compensation

30th April 2004

REWARD SYSTEMS – CONTD. HARD VARIABLES  







Salary Augmented Pay (overtime, etc) Indirect Pay (fringe benefits) Works Pay (uniform allowance, etc.) Perks Pay (discounts on company products, etc.

Performance Appraisal and Compensation

SOFT VARIABLES 







Opportunity for advancement Opportunity for growth Psychic Income (doing personally meaningful work) Quality of Life (workplace flexibility, etc.) 30th April 2004

EFFECTIVE REWARD SYSTEMS ARE… MEASURABLE

ATTAINABLE Effective Reward Systems

SPECIFIC

Performance Appraisal and Compensation

SIMPLE

30th April 2004

INCENTIVE SYSTEMS 

Individual Incentives: give income over and above base salary to individual who meets specific individual performance standards



Group Incentives: all team members rewarded when team collectively meets specific performance standard



Organization-wide Incentives: applicable to all employees in an organization

Performance Appraisal and Compensation

30th April 2004

INDIVIDUAL INCENTIVES – EGS. 

Variable Pay



Piecework Incentives



Differential Piece-rate Systems



Production Bonus (Eg. Levi Strauss)



Commission



Awards



Bonus



Other Perks

Performance Appraisal and Compensation

30th April 2004

VARIABLE PAY – BASIC BELIEFS 

Some jobs contribute more to the organization than others



Some people perform better than others



Employees who perform better should receive more compensation

Performance Appraisal and Compensation

30th April 2004

VARIABLE PAY IS… 

Not a part of salary



Not guaranteed



Based on individual, group, or organizational performance

Performance Appraisal and Compensation

30th April 2004

ADVANTAGES OF VARIABLE PAY 

Offers flexibility to target specific outcomes



Can be used to drive performance



Helps increase the involvement of employees in business success

Performance Appraisal and Compensation

30th April 2004

SUCCESSFUL VARIABLE PAY PLANS

Performance Appraisal and Compensation

30th April 2004

FORMS OF VARIABLE PAY

Performance Appraisal and Compensation

30th April 2004

PIECE-WORK INCENTIVES 

 



Employee is paid for each unit of output Works for only certain kinds of jobs Declining in popularity because does not always result in higher productivity

DIFFERENTIAL PIECE-RATE SYSTEMS

Employees paid one piece-rate for units produced upto a standard output and higher piece-rate wage for units produced over the standard Performance Appraisal and Compensation 30 April 2004 th

PRODUCTION BONUS 

Incentives that reward extra effort in the work place



When an employee either saves time on a given production run, or produces more units in a given time period, he is given a monetary reward per extra unit



Very similar to piecework, except that the employee still earns a base salary

Performance Appraisal and Compensation

30th April 2004

COMMISSION 

A percentage of the selling price given to the seller / sales person



Minimal base salary + commission as a way to make the employee a more aggressive seller



Usually employed only in sales-related jobs

Performance Appraisal and Compensation

30th April 2004

AWARDS 

Cash or merchandise used as incentives

ENHANCED COMPENSATION AWARD 

Agencies that meet certain performance criteria grant awards to employees who directly contribute to these performance standards

Performance Appraisal and Compensation

30th April 2004

BONUS 

One time payment that does not become part of the employees base pay

RETENTION BONUS 

Bonus paid in order to retain employees

Performance Appraisal and Compensation

30th April 2004

TEAM INCENTIVES

Performance Appraisal and Compensation

30th April 2004

WHAT ARE TEAM INCENTIVES? 

Payments or other non-financial rewards given to members of a formally established team which are linked with the performance of that team



Rewards are shared among members of the teams according to a predetermined formula, or on an ad hoc basis

Performance Appraisal and Compensation

30th April 2004

WHY THE NEED FOR TEAM INCENTIVES?

 Enhance productivity

 Tie earnings to team productivity  Improve Quality  Aid recruiting and retention of employees  Improve employee morale Performance Appraisal and Compensation

30th April 2004

 Encourage co-operation, not competition among employees  Enhance flexibility and encourage multiple skills and talents  Encourage less effective performers to improve in order to meet team standards  To develop self-managed and self-directed teams Performance Appraisal and Compensation

30th April 2004

CONDITIONS FOR SUCCESSFUL TEAM INCENTIVES

Performance Appraisal and Compensation

30th April 2004

TEAM INCENTIVES – EGS. 

A certain amount of finance shared by team members



Outings such as picnics, movies, dinners



Better access to equipment and facilities in workplace or provision with private/ own facilities at specific place of work

Performance Appraisal and Compensation

30th April 2004

ORGANIZATION-WIDE INCENTIVES

Performance Appraisal and Compensation

30th April 2004

GAIN SHARING 

A formal reward system that comprises 3 main elements:



A philosophy of co-operation



An involvement system



A Financial Bonus

Performance Appraisal and Compensation

30th April 2004

PHILOSOPHY OF COOPERATION 

High levels of trust



Two-way communication



Participation



Harmonious Industrial Relations

Performance Appraisal and Compensation

30th April 2004

INVOLVEMENT SYSTEM 

Refers to structure and process for improving organizational productivity



Either team-work/employee based suggestion system

Performance Appraisal and Compensation

30th April 2004

FINANCIAL BONUS 

Determined by calculation that measures the difference between expected costs and actual costs during the bonus period.

Performance Appraisal and Compensation

30th April 2004

PROFIT SHARING 

Employees receive a bonus that is normally based on some percentage (e.g. 10% to 30%) of the company’s profits beyond some minimum level



Company pays only if it makes a profit – hence compensation is more variable and dependent on extrinsic conditions



Thus, these benefits are not fixed 30 April 2004

Performance Appraisal and Compensation

th

3 COMPONENTS MUTUALLY REINFORCE ONE ANOTHER Co-operation Financial Bonus

Information Sharing

Productivity

Involvement New-behaviour Suggestion

Performance Appraisal and Compensation

30th April 2004

DIFFERENCES BETWEEN… GAIN SHARING Based on a measure of productivity

PROFIT SHARING Based on a global profiting measure

Current distribution plans Deferred payment plans / frequent distribution Annual measures and rewards after determining profit True incentive plans Employee benefit plans Directly related to individual behaviour and can therefore more effectively motivate worker productivity Performance Appraisal and Compensation

Related to overall company performance and therefore may be a little more difficult to relate to individual behaviour 30th April 2004

NON-FINANCIAL INCENTIVES CAN BE IN THE FORM OF: 

Achievement



Recognition



Responsibility



Influence



Personal Growth

Performance Appraisal and Compensation

30th April 2004

NON-FINANCIAL INCENTIVES – EGS. 

Positive feedback



Praise from a higher authority



Recognition in company’s magazine/ newsletter/notice boards/special events



Special events – holidays/dinners/movies



Travel abroad to other branches of the company



Opportunities to represent the company at regional/national/international conferences

Performance Appraisal and Compensation

30th April 2004

AVENTIS PHARMACEUTICALS Sales 40% Domestic sales Exports

25% 15%

Profit before tax (PBT) 25% Outstanding

10%

Inventories

10%

Number of employees

Performance Appraisal and Compensation

30th April 2004

AVENTIS PHARMACEUTICALS… Individual Objective Incentive Slabs



120% achievement

20% of basic



110% achievement

15% of basic



100% achievement

10% of basic



90% achievement

5% of basic



Below 90%

No bonus

Performance Appraisal and Compensation

30th April 2004

AVENTIS PHARMACEUTICALS… 

 

 



Company achievements for a particular year are 107% Individual performance is 100% Employees salary is Rs.15000 p.m. Annual target 60,00,000 If an employee achieves 100% target = Rs.30,000 If an employee achieves 104% of his target Performance Appraisal and Compensation 30 April 2004 104 * 30000 / 100 = Rs.31,200 th

LUPEN PHARMACEUTICALS… Company Performa nce 25%

SBU Performa nce 25%

Individua l Performa 50% nce

---

50%

50%

GMs

25%

25%

50%

Presiden ts

40%

60%

---

GRADE Corporat e staff Manager s

Performance Appraisal and Compensation

30th April 2004

Performance Appraisal and Compensation

30th April 2004

Performance Appraisal and Compensation

30th April 2004

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