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Employee incentive plans provide a goal to motivate staff members within a

company or organization. Incentive program rewards are a positive way for an
organization to honor or acknowledge employees' efforts or achievements.
Developing an incentive plan is as individualized as your staff. Consider what "carrot"
motivates employees to excel, and involve staff throughout the entire process to
obtain .There are two types of incentive plans i.e. variable pay and pay-for-
performance plans. Variable pay plans refers to one-time lump payments that are
linked to productivity or profitability. Pay -for-performance plans ties pay to the
employees͛ performance.

As the economy becomes mor e global, competition is at an all-time high.

Consequently, organizations are looking for ways to inspire their employees to be
more productive. Many organizations have created employee incentive plans that
reward employees based on performance and product ivity. In the end, these
incentive plans are designed to motivate employees to help achieve organizational
goals.

  
 





All individual employee incentives are tied to the individual͛s performance,

particularly, for nonmanagerial level employees. It allows employees to see the link
between what they do and what they get. However, individual incentives could
create internal competition that could lead to a distrustful work culture.

  

 

 

Employee incentive plans provide a goal to motivate staff members within a

company or organization. Incentive program rewards are a positive way for an
organization to honor or acknowledge employees' efforts or achievements.
Developing an incentive plan is as individualized as your staff. Consider what "carrot"
motivates employees to excel, and involve staff throughout the entire process to
obtain feedback to improve your program.
 Œ Instructions

I. Identify a clear set of goals. Meet with mana gers to create a concrete list of goals
that the company must achieve by the end of each quarter and year. For assistance
with identifying goals, management should refer to the company's business plan and
mission statement.Determine how employees will collaboratively contribute to the
overall corporate goals. Create a list of corporate-wide goals, then ask each
department manager to generate a list of department goals that will be introduced
to his employees.

II. Meet with employees to introduce goals. Review corporate goals during an all -
employee meeting and include specific data such as percentage increases and dollar
amounts the company should achieve by certain dates. Ask department managers to
hold breakout meetings with staff members to review and discuss department goals.

III. Survey the employees to determine which incentives are most motivating. Create a
list of several incentives---from company or department parties to money and ask
employees to rank the incentives, starting with one being the best.

IV.  Design an incentive plan outline that matches goals to incentives using the employee
incentive survey. Assign incentives that are possible for all employees to achieve to
the corporate-wide goals and individualized incentives to department goals. For
example, offering a company-wide dress down day may be an attractive incentive for
reaching a corporate goal, however if the employees in a particu lar department
reach a goal, each employee earns a $5 gift card to the local coffee shop.

V.  Launch the incentive plan during an all -employee party. Discuss how employee input
steered the company's goals and incentives so employees feel empowered and
enthusiastic about meeting goals. Generate a small handbook or provide handouts
that detail the program and incentives.

 D  

 

Creating the right incentives can make all the difference in a company achieving its
objectives. Incentive, bonus and commission plans give employees personal stake in their
company's financial outcome. However, there are many philosophies on what kind of
incentive plans are most effective, as well as the issue of what a company can afford in the
way of incentive pay. The process of developing an incentive plan means significant internal
dialog within a company to decide on the key issues.

Œ Difficulty:ModerateInstructions

I. Determine what behavior you want to encourage with your incentive. Increasing
sales volume might lead to a commission or individual bonus plan, while a quarterly
bonus based on the company's profitability can be good for encouraging teamwork
and interdepartmental collaborations.

II. Meet with key managers and executives who have a stake in how employee s are
compensated to get their input and develop a consensus about goals and the impact
of various incentive plan structures. Consider any potential consequences if some
employees are paid with incentive plans while others are not and how the company
will address them.

III. Study the various models of employee incentive plans, looking for which ones will
best match with your goals and company outlook. You may find that emphasizing
short-term goals with monthly or quarterly incentives will back your efforts bes t.
Although for long-term strategic goals, you may elect annual payouts for
achievement of departmental, divisional or company-wide goals.

IV.  Review the financial implications of a successful bonus plan. Calculate the amount of
sales increase that would make it profitable for the company to part with
 commission or bonus money. Determine how much the company is willing to spend
to achieve each of its goals. You should always assume that people will achieve their
goals when figuring out what an incentive plan will cost the company.

V.  Write a clear policy on the compensation plan upon which you decide. Consider as
many potential issues or problems people might have with it, and attempt to
address them in your policy. Leave no room for ambiguity. Consider that th is
document will need to be clear enough to use for human resources purposes and
could potentially be used in a legal case. Have your draft reviewed by an attorney
before using it.

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Companies use sales staff incentive plans for motivating employees to work toward
increasing sales and supporting the sales representatives. These incentive plans can be
developed internally or by a professional sales incentive consultant. However, there are
certain guidelines for ensuring a successful sales staff incentive plan.

Œ Significance

The staff sales incentive plan needs to be communicated to all managers and employees
throughout the organization. Employees must understand all aspects of the incentive plan.

Œ Considerations
It may behoove an organization to allow sales staff employees to pick the rewards; or at
least give them a menu of options from which to choose. The incentives must have value for
motivating employees and achieving desired results, according to Maritz.com : Sales
Incentives.

Œ Effects
The incentive plan must be attainable and tied to both short - and long-term goals. A
manager should consider having smaller rewards each month or quarter when certain
milestones are reached. This gives more staff employees the chance of receiving a reward.

Œ Types
Short-term sales staff incentives can be as simple as a free lunch with top management,
tickets to a baseball game and recognition in front of peers. Long -term sales incentives can
include profit-sharing, bonuses or stock options.

Œ Warning
Managers should not play favorites or give some sales staff advantages over others.
Everyone should have an equal chance of winning. The consequences could be be apathy or
even rebellion.

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Sales are an integral part of many businesses. While proper sales associate training should
be done to increase the likelihood of making sales, associates can be pushed to sell harder if
an incentive plan is implemented. Incentive plans reward sales associates for meet ing
specified sales goals, and while the exact incentive can vary, the results from implementing
such a plan can help increase the number of sales.

Œ Difficulty:ModerateInstructions

I. Write out the incentive program overview. The overview should clearly def ine the
overall objective of the incentive plan, which is to increase sales and reward
associates who meet the preset goals. Outline the performance goals required to
earn a prize. The goal should be designed to reward not only the top performers, but
also those who have increased their previous sales numbers. Determine the overall
cost of the prizes and meet with head management to approve the budget for the
incentive plan.
 II. Create a prize tier for the incentive plan. Establish three tiers for earning pri zes. The
first tier should be for any employee who increases his sales performance by a
certain percentage. This will reward employees who did not sell the most products,
but increased their productivity. The second tier should be for employees who sold a
certain number of additional products. In retail environments, the second prize tier
could involve associates who sold a certain number of extended warranties or those
who sold a certain number of accessories with the main product. The third tier
should reward the top performers in the department. Establish a specific number of
products that should be sold to qualify for this top -tier prize.

III. Set deadlines for the incentive program. An incentive plan should last two to three
months, according to Young Entrepreneur. This gives employees ample time to reach
their goals. After gaining budget and prize approval from head management,
establish an official start and end date.

IV.  Print off the incentive plan overview and hand out to sales employees.

  
 

Piecework plan is a plan where employees are paid for each unit produced, particularly, in the
production/operations area. The more units they produce, the more pay they receive.

The advantages and disadvantages of piecework plans are shown in thetable below.

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Easy to understand and fair Employee emphasizes on output instead of

quality

Powerful incentive to perform as rewards is May refuse to switch jobs as their productivity
tied to productivity maybe affected

Resist the introduction of new technology as

they are afraid that their productivity maybe
affected

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Merit pay is a pay increase given to employees based on their performance as shown in the
performance appraisal. It will increase the employees͛ base salary and is believed to motivate
employees to work harder. White-collar employees such as professionals and office and clerical
employees are usually subject to merit pay.

The problems associated with merit pay are as follows:

P Supervisors tend to give the same raise to all employees by minimizing differences in
employee performance. This is because they want to assist employees to keep up with the
cost of living.
P As most employees perceive themselves as above-average performers, they will be de-
moralized if they receive a below-average merit raise.
P If the performance appraisal process is unfair, the merit pay will also be unfair.

  

 

There are two types of merit pay options i.e.:

a. A one-time award which does not increase the employees͛ salary such as annual bonuses

b. the merit raises links both individual and organizational performance. As per the table below,
both organization and individual performance is given equal weight. An excellent employee will
receive 60% of their maximum lump-sum award even if the organization͛s performance is marginal.
On the other hand, employees with unacceptable performance will not receive any lump-sum award
even if the organization͛s performance is outstanding.

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†nder this plan, salespeople receive a fixed salary regardless of sales volume. This type of plan is
feasible in jobs where their main tasks are finding new clients, servicing accounts or supporting
customers͛ salespeople in trade shows. Example: aerospace and transport equipment industries.

The main benefits of this approach are:

P Simple to switch territories or re-assign salespeople

P Foster employee loyalty
P Focus is on sourcing for new clients and maintaining long-term relationships with customers

The disadvantage of this plan is that pay is not proportionate to results, thus, discouraging high
performers.

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The salesperson͛s pay is determined as a percentage of sales. If the salesperson does not make any
sales, he will not get any salary and vice-versa.

The advantages and disadvantages of this plan are shown in the table below.

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Easy to understand and compute Salespeople emphasize on generating sales,

especially, for high volume items

Attract high-performers to the organization Neglect non-selling duties such as pushing

hard-to-sell items and servicing small accounts

Low fixed sales cost as most of the sales cost Wide variations in income leading to
are variable costs employees͛ dissatisfaction in the long run

Sales performance of a product also depends

on the ability of the people in persuading and
convincing prospective clients to buy the
product or service

High turnover as there is no financial safety

net for employees

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The salesforce may also get various special awards such as Top Salesman of the Year. This is
apparent in multi-level marketing organizations. Apart from that, most organizations offer trips
overseas as part of their sales incentive plans. For example, salespeople maybe given free trips to
Hanoi, Cambodia, South Africa, Korea and etc. depending on the amount of sales achieved.
Organizations practicing these are insurance companies, mutual fund companies and others.

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Team-based pay is based on how well the team performs. The rationale of implementing team-
based pay plans is that some jobs are interdependent and it is difficult to isolate and evaluate
individual performances. In order to increase the degree of group cohesiveness, it must have a clear
purpose and goal, adequate tools to accomplish its tasks, mutual trust, respect, two-way
communication among team members and every member is treated fairly. As a result, there will be
improvement in productivity, efficiency and profitability.


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The advantages and disadvantages of team incentives are shown in the table below.

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Easier to develop performance standards for
groups than for individuals
More teamwork as team members work together
to plan and solve problems
Facilitates training as each member has an interest
to train new members as soon as possible
Employee͛s salary may not be proportionate to his
efforts which may de-motivate exemplary
employees
The issue of free riders
Internal competition among groups can affect the
organization negatively

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Apart from the financial incentives offered by the organization, supervisors can motivate their
employees by:

P Ensure that employees have acceptable, doable and challenging goals

P Recognize and appreciate employees for their work
P Freedom to select own work activity
P Make the work fun
P Assign more of preferred task
P Represent the superior when he is away or conduct presentations to top management
P âob rotation
P Encourage learning and continuous improvement
P Compliments, expressions of appreciation in front of others and note of thanks
P Employee of the month award
P Participation in setting work goals
P ùigger desk, office or cubicle

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The organization-wide variable pay plans usually focus on the organization͛s productivity, cost
savings or profitability. These plans include:

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Profit Sharing is a compensation plan that distributes a predetermined percentage of the

organization͛s profits to employees. The organization must be able to measure its output so that it is
easy to share the savings with employees when they are able to increase productivity via a reduction
in labor cost. There are a few types of profit-sharing plans used today:

P The Current/Cash plan distributes a percentage of profit (15% to 20%) to employees in cash
or stock as soon as profits are determined
P Deferred plans involve placing the predetermined profit into a trust, credited to individual
employees͛ account. The money becomes available upon the employees͛ retirement,
termination or death.
P Combination plans is a plan comprising current/cash plan and deferred plan.
The advantages and disadvantages of the profit-sharing plan are shown in the table below.

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Increase efficiency due to lower turnover and Average employees may not perceive any
absenteeism relationship between individual output and
organization͛s performance
Reduce cost
Fewer grievances
Improve labor-management relations

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The organization gives employees free shares or offer them at a discounted price (pink form) is
known as an Employee Stock Ownership Plan. As such, employees are more committed to their work
as they will get a higher financial incentive if the organization͛s financial performance is good. This is
because they will receive a higher dividend as they own some of the organization͛s share. Examples
of organizations offering ESOP are Standard Chartered ùank, Citigroup, Genting Group and others.

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Gainsharing plans involve employees working towards achieving the organization͛s productivity
objectives. Thus, employees͛ goals are aligned to the organization͛s goals. The purpose of this plan is
to improve cost-efficiency, profitability and reduce costs. Gainsharing plans are also known as
productivity incentives, team incentives and performance sharing incentives.

A good example of gainsharing plan is the Scanlon plan. This plan provides employees with a bonus
based on tangible savings in labor costs. It emphasizes management-labor cooperation, collaborative
problem-solving, teamwork, trust, gainsharing, open-book management and servant leadership.

There are eight steps in implementing a gainsharing plan

P Establish general plan objectives

P Choose specific performance measures
P Decide on a funding formula
P Decide on a method for dividing and distributing the employees͛ share of the gains
P Choose the form of payment
P Decide how often to pay bonuses
P Develop the involvement systems such as steering committees, update meetings, suggestion
systems, coordinators, problem-solving teams, department committees, newsletters, and
internal and external auditors
 P Implement the plan

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If the organization does not meet its financial goals, employees do not receive a certain portion of
their pay. However, they will receive their pays and incentives when they meet or exceed their goals.

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As managers play an important role in generating divisional or corporate profits, most organizations
reward them with short-term bonuses and long-term incentives.

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Annual bonuses are given to motivate the performance of executives and managers. Organizations
usually consider the issues below when awarding bonuses:

a. Decide the eligibility of the recipient by considering factors such as job title, base salary, impact on
the organization͛s profitability and others.

b. Decide on the total amount of bonus to be paid

c. Decide on the individual awards i.e. are bonuses paid according to the individual͛s performance or
organization͛s performance or both. This will depend on the level of management in the
organization. Top management͛s bonuses are usually linked to corporate results while lower
management͛s bonuses are dependent on their individual performances.

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Long-term incentives such as cash, stock and stock options are given to executives in order to retain
them for at least two or three years.

Stock option plans allow them to accumulate their capital to be cashed after a certain number of
years. A stock option is the right to buy a specific number of the organization͛s shares at a specific
price during a specific period of time. Profits will be generated if the market price of the shares is
higher than the exercise price. The market price of the share is determined not only by the
organization͛s financial fundamentals and prospects but also the general economic and market
conditions.

For instance, many employees in Citicorp did not take up the stock option as the exercise price was
higher than the market price of the shares. Instead, they opted for the second option i.e. to receive
6% interest for the money that they had deposited for the stock option.

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Organizations also offer other types of executive incentives such as golden parachutes and golden
handshakes.

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Research has shown that 70% of employees feel that their organizations͛ incentive plans are
ineffective. Therefore, we want to investigate the reasons for the failure of these incentive plans and
ways to increase the effectiveness of these incentive plans

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Title:Assigment 4

Name:Roshuzieana Binti Mohd Shuhairi

Student ID:01-201007-00519
IC No:880602-06-5070
Name Lecture:Mr.Chandran Kasi


  
 
  
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