TRADITIONAL BASIS FOR PAY By

Atif Siddiqui

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COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
 INCENTIVE COMPENSATION?

Compensation that is linked to performance by rewarding employees

for actual results achieved instead of seniority or hours worked.

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WHY INTRODUCE INCENTIVE COMPENSATION?

To promote employee identification with the organization’s

objectives. Many organisations attempt to link the achievement of
company objectives to employee rewards. This builds employee
commitment. (profit-sharing)
To encourage individual, team or business unit performance which
makes the incentive reward dependent on specific work outcomes
that the employee, or the work group, directly affect. (commission,
piece-rates)
To control fixed compensation costs. One way of controlling
compensation costs is to designate a portion of pay as ‘at risk’ if
predetermined business unit, team or individual objectives are not
achieved.
To increase remuneration competitiveness.
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 Types of Plans
1. BONUS VERSUS INCENTIVE

A bonus is determined and given after the job is done and it makes no guarantee
that future work or effort will be rewarded similarly.
Where a bonus is reactive, an incentive is proactive.
An incentive provides a very direct message to an employee: ‘If you achieve this
level of performance, you will receive this amount of reward.’

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 Types of Plans
1. BONUS VERSUS INCENTIVE

A bonus is determined and given after the job is done and it makes no guarantee
that future work or effort will be rewarded similarly.
Where a bonus is reactive, an incentive is proactive.
An incentive provides a very direct message to an employee: ‘If you achieve this
level of performance, you will receive this amount of reward.’

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 Types of Plans
2. PAY-FOR-PERFORMANCE LINK
Incentive-type plans aim to strengthen the perceived link between
pay and performance.
The relationship between pay and performance is especially
effective when it is based on those aspects of the work that are
under the individual employee’s direct control and influence - if you
sell or produce more, you earn more!
This establishes an immediate relationship between results and
rewards.

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 Types of Plans
3. VARIABLE AND ‘AT-RISK’ PAY
Any pay system that provides a bonus or incentive is a
variable pay system.
The amount of the bonus or incentive varies and cannot be
predetermined.
Other systems are based on the notion of some portion of
pay being ‘at-risk’ against specified levels of performance.
A clear principle is that the employee must have the
opportunity to earn more than the target amount.

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 Types of Plans
4. INDIVIDUAL INCENTIVE PLANS
The organisation must emphasise individual contribution as
distinct from team or work group effort.
The job must be designed to allow each employee to work
independently and with autonomy and discretion.
There are 3 criteria for setting performance objectives:
Internal benchmark (within the organisation)
External benchmark (outside the organisation)
Strategic business objectives - performance is measured
against the strategic business objectives set for the
organisation.

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COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.
COPYRIGHT © 2018 / ATTIF.SIDDIQUI@GMAIL.COM / 03002101976.