Incentive Pay Systems

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Incentive Pay Systems
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Pay for Performance Plans

• Individual incentive plans 28
• Group incentive plans
• Profit-Sharing 32
• Gain-sharing 13
• ESOPs
• Variable Pay
• Pay for Knowledge/Skill-Based 5
• All-salaried work force 11
• Lump sum awards, bonuses

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Individual Incentive Plans

• Pay plans designed to relate pay directly to
  performance or productivity, often used in
  conjunction with a basic wage and salary system.
• Piece rate plans
• Plans based on time saved
• Plans based on commission
• Individual bonuses
• Suggestion Systems

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Incentives for Managers

• Annual bonuses
• Long-term performance plans
• Performance share plan (unit plan)
• Stock options
• Qualified stock options
• Nonqualified stock options
• Incentive stock option (ISO)
• Stock-for-stock swap
• Stock appreciation rights
• Phantom Stock
• Restricted stock
• Premium price options

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Group Incentives

• Organization-wide incentifes
• Profit Sharing and Gain-Sharing Plans
• Scanlon-type plans
• Employee Stock Ownership Plans (ESOPs)

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DuPonts Profit Sharing
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Three Gain-Sharing Formulas
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Exhibit 5-7Scanlon, Rucker, and Improshare
Plans A Comparison of Key Features
FEATURE
SCANLON
RUCKER
IMPROSHARE
Program goal Basis for savings Employee
involvement Type of employee involvement Bonus
payout frequency
Productivity improvement Labor costs Required
Screening and production committees Monthly
Productivity improvement Labor costs plus raw
materials costs plus services costs (e.g.,
utilities) Required Screening and production
committees Monthly
Productivity improvement Completing work at or
sooner than production standard Not
required Not applicable Weekly
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Exhibit 5-4A Sample Behavioral Encouragement
Plan That Rewards Employee Attendance
At the end of each three-month period, employees
with exemplary attendance records will receive
monetary incentive awards according to the
following schedule. Note that the number of days
absent does not refer to such company-approved
absences as vacation, personal illness, jury
duty, bereavement leave, military duty, scheduled
holidays, and educational leave.
NUMBER OF DAYS ABSENT
MONETARY INCENTIVE AWARD
0 days (perfect attendance) 1 day 2 days 3 days 4
days
250 200 100 50 25
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Typical Performance Measures for Individual,
Group, and Company-wide Incentive Plans

• Individual Incentive Plans
• Quantity of work output
• Quality of work output
• Monthly sales
• Work safety record
• Work attendance

• Group Incentive Plans
• Customer satisfaction
• Labor cost savings (base pay, overtime pay,
  benefits)
• Materials cost savings
• Reduction in accidents
• Services cost savings (e.g., utilities)

• Company-wide Incentive Plans
• Company profits
• Cost containment
• Market share
• Sales revenue

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