Short-Term Incentives

1
Short-Term Incentives

• Those additions to base pay provided to employees
  within the current year.

2
Short-Term Incentives

• In reviewing opportunities for granting
  short-term incentives, employees must be viewed
  from four different perspectives
• Individual contributors
• Team members
• Work units
• Organization members

3
Premiums Differentials
Defined and Proscribed By

• Wage and Hour Laws
• Pay Policy and Procedures
• Union Contracts
• Industry Practices

4
Premiums Differentials

• Overtime Pay
• Shift Differential
• Weekend
• Holiday Work
• Call-back
• Reporting

• Standby
• Cleanup Time
• Burdensome
• Distasteful
• Hazardous Work

5
Pay-For-Units-Produced

• The oldest of all incentive programs.
• It was sophisticated in the scientific management
  theories of Frederick Taylor in the late 19th
  century.
• The basic three Ss of workplace efficiency
  programs are
• Standardize - Simplify - Specialize

6
Pay-For-Units-Produced

• The three building blocks that provide the
  foundation for many pay-for-units-produced
  incentive plans are
• Establishing the time required..
• Determining what should be considered an
  acceptable level of performance...
• Establishing an acceptable level of pay.

7
Team Incentive Plans

• Most of the various kinds of individual incentive
  plans described in our text can be used in
  rewarding the efforts and contributions of teams.

8
Aggregating Employees ForIncentive Opportunities

• It is not unusual for executives to receive
  short-term bonuses equal to 50 of base pay and
  for other senior managers to receive bonuses
  equaling 25 to 50 of base pay.
• While short-term incentive programs have
  descended through the management structure, the
  major recipients continue to be the senior
  managers.

9
Aggregating Employees ForIncentive Opportunities

• The size of the bonus pool from which management
  short-term incentives are taken is normally
  determined by some form of profit measurement.

10
Aggregating Employees ForIncentive Opportunities

• The measures used will vary by organization and
  they are normally formula driven plans with one
  or more of the following characteristics

• Profit Before Taxes
• Profit After Taxes
• Return On Equity
• Return On Invested Capital

11
Aggregating Employees ForIncentive Opportunities

• The amount of the bonus is normally established
  as a percentage of base pay.

12
Organization-WideShort-Term Incentives

• Productivity Gain Sharing Plans
• This is basically a sharing by the organization
  with employees of "bottom-line" improvements
  obtained through increased productivity.
• A first requirement for a gain sharing plan is
  determination of a standard measure of
  performance.

13
Scanlon Plan

• Scanlon's philosophy was that if the company
  would foster and use employee ideas and
  suggestions and, in turn, reward employees for
  their constructive efforts, the company would
  improve profitability and workers would gain
  through steady employment and increased pay.

14
Scanlon Plan

• The Basic Elements of the Scanlon Plan are
• The Ratio
• Total labor cost / sales value of
  production .
• The Bonus
• Depends on the reduction in costs below the
  preset ratio.

15
Scanlon Plan

• The Production Committee
• Formed in each major department and is used to
  tap into the imagination and ingenuity of the
  workers.

16
Scanlon Plan

• The Screening Committee
• Consists of top members of the plant management
  and workers representatives, usually eight to
  twelve members.
• It reviews the monthly bonus, discusses current
  production problems, and considers all
  suggestions for organizational improvement.

17
Profit Sharing

• Any procedure under which an employer pays or
  makes available to regular employees, (subject to
  reasonable eligibility rules) in addition to
  prevailing rates of pay, special current or
  deferred sums based on the profits of business.

18
Profit Sharing

• There are essentially three different types of
  profit sharing plans in existence today
• Cash or current payment plan
• Deferred plan (pension support)
• Combined plan

19
Lincoln's Incentive System

• The company guarantees 30 hours of work 50 weeks
  a year to each employee who has a least 3 years
  of service.
• Standard job evaluation procedures set the base
  wage, using six compensable factors to determine
  the importance of each job.

20
Lincoln's Incentive System

• The majority of workers are on a piecework
  incentive plan.
• All employees may participate in the suggestion
  program with the exception of department heads
  and members of the engineering and time-study
  departments.

21
Lincoln's Incentive System

• Twice a year, a merit rating program appraises
  the actual work performance of each employee.
• After the first year of service, each employee
  annually has the opportunity to purchase a
  limited number of shares of company stock.
  (Currently, about 75 of the employees own 40 of
  the stock)

22
Lincoln's Incentive System

• Employees elect representatives to an "advisory
  board". The board has the opportunity to suggest
  changes in policies and operations.
• The annual cash bonus earned by the employees
  closely approximates their annual earnings.

23
Lincoln's Incentive System

• Independent work groups or "subcontractor shop"
  operations, perform their own quality control and
  develop their own production procedures in
  completing subassembly operations within given
  cost, quantity, and quality parameters.

24
Lincoln's Incentive System

• All profits of the business are split three ways
• The corporation retains a share for capital
  improvement and financial security.
• Shareholders receive approximately 6 to 8
  dividends.
• Employees receive all remaining profits.

25
Timing Of Bonus Payments

• Christmas Bonus
• Vacation Bonus
• Annual Lump-sum Bonuses