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Human Resource

Management

SECTION 4

Compensating
Human
Resources

TENTH EDITON

Robert L. Mathis

John H. Jackson

Chapter 13

Variable
VariablePay
Payand
and
Executive
ExecutiveCompensation
Compensation

2003 Southwestern College Publishing. All rights reserved.

PowerPoint
Presentation
by Charlie Cook

Learning
Learning Objectives
Objectives
After you have read this chapter, you
should be able to:
Define variable pay and give examples of
three types of variable pay.
Identify four guidelines for successful
incentive programs.
Discuss three types of individual incentives.
Explain three different way that sales
employees typically are compensated.
Identify key factors that must be addressed
when using team variable pay plans.
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Learning
Learning Objectives
Objectives (contd)
(contd)
Discuss why gainsharing, profitsharing, and
employee stock options have grown as
organizational incentive plans.
Identify the components of executive
compensation and discuss criticisms of
executive compensation levels.

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Variable
Variable Pay:
Pay: Incentives
Incentives for
for Performance
Performance
Variable Pay Systems

Service Pay Systems

Some jobs contribute more to the


organization than others.

Time spent is the primary


measure of employee contribution

Some people perform better than


others.

Length of service is the primary


differentiating factor among
people.

Employees who perform better


should receive more
compensation.

Contributions are recognized


through different amounts of base
pay.

A portion of some employees


total compensation should be
contingent on performance.

Apportioning rewards based on


individual performance is
considered to be divisive.

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Types
Typesof
of Variable
VariablePay
PayPlans
Plans

Figure 131

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Factors
Factors Affecting
Affecting Variable
Variable Pay
Pay Plans
Plans
Does
Doesthe
theplan
planfit
fit
the
theorganization?
organization?

Variable
VariablePay
Pay
Plan
PlanSuccess
Success

Are
Arethe
theright
rightbehaviors
behaviors
encouraged
encouragedby
bythe
theplan?
plan?

Is
Isthe
theplan
planbeing
being
administered
administeredproperly?
properly?

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Factors
Factorsfor
for
Successful
Successful
Variable
VariablePay
Pay
Plans
Plans

Figure 132

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Individual
Individual Incentives
Incentives

Identification
Identificationof
of
Individual
Individual
Performance
Performance

Independent
Independent
Work
Work

Individual
Individual
Incentive
Incentive Pay
Pay
Plans
Plans
Individualism
Individualism
Stressed
Stressedin
in
Organizational
Organizational
Culture
Culture

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Individual
Individual
Competitiveness
Competitiveness
Desired
Desired

138

Piece-Rate
Piece-Rate Systems
Systems

Straight Piece-Rate Systems


Wages are determined by multiplying the
number of pieces produced by the piece rate
for one unit.

Differential Piece-Rate Systems


Employees are paid one piece-rate for units
produced up to a standard output and a
higher piece-rate wage for units produced
over the standard.

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Bonuses
Bonuses and
and Special
Special Incentive
Incentive Programs
Programs

Bonus
A one-time payment that does not become part of
the employees base pay.

Awards
Cash or merchandise used as an incentive reward.

Recognition Awards
Recognition of individuals for their performance or
service to customers in areas targeted by the
firm.

Service Awards
Rewards to employees for lengthy service with an
organization.

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Sources
Sourcesof
ofBonuses
Bonuses

Source: Kathryn F. Clark, Incentives Increase But Competitive Base Salary Key in
Talent Race, Human Resource Executive, June 2, 2000, 30. Used with permission.

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Different
DifferentBases
Basesfor
forSales
SalesIncentives,
Incentives,In
InOrder
Orderof
ofUse
Use

Figure 134

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Sales
Sales Compensation
Compensation Plans
Plans

Salary Only
All compensation is paid as a base wage with
no incentives.

Commission
Straight Commission
Compensation is computed as a percentage of sales in
units or dollars.
Draw system make advance payments against future
commissions to salesperson.

Salary Plus Commission or Bonus


Compensation is part salary for income stability and
part commission for incentive.

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Why
WhyOrganizations
OrganizationsEstablish
EstablishTeam
TeamPay
PayPlans
Plans

Figure 135

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Group/Team-Based
Group/Team-Based Variable
Variable Pay
Pay
Determining
Determining
Individual
Individual
Rewards
Rewards
Timing
Timingof
of
Team
TeamIncentives
Incentives

Distributing
Distributing
Team
Team
Incentives
Incentives

Deciding
Decidingthe
the
Allocation
Allocationof
of
Rewards
Rewards

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Conditions
Conditionsfor
forSuccessful
Successful Team
Team Incentives
Incentives

Figure 136

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Gainsharing
Gainsharing

Gainsharing
The sharing with employees of greater-thanexpected gains in productivity.
Alternatives for rewards distribution:

A flat amount for all employees


Same percentage of base salary for all employees
Percentage of the gains by category of employees
A percentage based on individual performance against
measures

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Profit
Profit Sharing
Sharing

Profit Sharing
A system to distribute a portion of the profits
of the organization to employees.
Primary objectives:
Improve productivity
Recruit or retain employees
Improve product/service quality
Improve employee morale

Drawbacks
Disclosure of financial information
Variability of profits from year to year
Profit results not strongly tied to employee efforts

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Profit-Sharing
Profit-SharingPlan
Plan Framework
FrameworkChoices
Choices

Figure 137

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Employee
Employee Stock
Stock Ownership
Ownership Plans
Plans (ESOPs)
(ESOPs)

Employee Stock Ownership Plans


A plan whereby employees gain stock
ownership in the organization for which they
work.

ESOP Advantages
Favorable tax treatment for ESOP earnings
Employees motivated by ownership in the firm

ESOP Disadvantages
Retirement benefit is tied to the firms
performance
Management tool to fend off hostile takeover
attempts.

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U.S.
U.S.CEO
CEO Remuneration
Remuneration

Source: The Economist, May 8, 2000, 16.

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Executive
ExecutiveCompensation
Compensation Components
Components

Figure 139

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Common
CommonExecutive
ExecutivePerks
Perks

Figure 1310

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Arguments
Arguments
in
inthe
the
Executive
Executive
Pay
PayDebate
Debate

Figure 1311

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