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
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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