Managing

Human Resources
Bohlander  Snell  Sherman

Chapter 10
Incentive Rewards

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Learning Objectives
Discuss the basic requirements for successful
implementation of incentive programs.
List the types of, and reasons for implementing,
individual incentive plans.
Explain why merit raises may fail to motivate
employees adequately and discuss ways to
increase their motivational value.
State and identify the advantage of each of the
principal methods used to compensate
salespersons.
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
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 Learning Objectives, cont.
Differentiate how gains may be shared with
employees under the Scanlon, Rucker,
Improshare, and earnings-at-risk gainsharing
systems.
Explain what profit-sharing plans are and the
advantages and disadvantages of these programs.
Describe the main types of ESOP plans and
discuss the advantages of ESOPs to employers and
employees.

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Presentation Slide 10-1
Advantages of Incentive Pay Programs

 Employee effort is focused on important

targets
 Rewards are variable costs linked to results
 Incentives are directly related to improved
performance
 Incentives reward those responsible for
higher performance

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Variable Pay

Tying pay to some measure of individual,

group, or organizational performance

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Presentation Slide 10-1

Advantages of Incentive Plans

Focus Employee
Effort
Variable Costs

Tied to Operating
Performance

Foster Teamwork
Distribute
Success
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
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 Six Components of Effective
Incentive Plan Administration

 Grant incentives based on performance

 Adequate financial resources to reward
performance
 Clearly defined and accepted performance
standards
 Easily understood payout formula
 Reasonable administrative costs
 Wide coverage of employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Administering Incentive Plans
Individual
Differences in
Performance

Sufficient Salary
Budgeting

Accurate Cost
Overhead
Determination

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Presentation Slide 10-2

Employee Opposition to Incentive Plans

 Production standards are set unfairly.
 Incentive plans are really “work speedup.”
 Incentive plans create competition among
workers.
 Increased earnings result in tougher standards.
 Payout formulas are complex and difficult to
understand.
 Incentive plans cause friction between employees
and management.
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
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Incentives for Hourly Employees

Piecework Individual Bonuses

Standard Hourly
Team Bonuses
Plan

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Presentation Slide 10-3

Incentive Plans for Employees #1

Type of Incentive Based on
Piece rate Units produced

Standard hour plan Time saved

Bonuses Established goals or criteria
Merit raises Established criteria and
policies
Commissions Amount of sales

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Presentation Slide 10-4

Incentive Plans for Employees #2

Type of Incentive Based on
Maturity curves Experience and performance
Stock options Achievement of specific
goals
Profit sharing Organizational profits
distributed proportional to
pay
Gainsharing Improved productivity or
cost savings
Stock ownership Special purchase plans or
bonus distribution
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
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 Presentation Slide 10-5
Motivation Through Merit Raises

 Develop employee confidence and trust in

performance appraisal
 Establish job-related performance criteria
 Separate merit pay from regular pay
 Withhold merit payments when
performance declines
 Distinguish merit raises from cost-of-living
raises

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Straight Piecework

Incentive plan under which employees

receive a certain rate for each unit produced

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Differential Piece Rate
Compensation rate under which employees
whose production exceeds the standard
amount of output receive a higher rate for all
of their work than the rate paid to those
who do not exceed the standard amount

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Standard Hour Plan

Incentive plan that sets rates based

upon the completion of a job
in a predetermined standard time

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Bonus

Incentive payment that is supplemental

to the base wage

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Spot Bonus

Unplanned bonus given for employee

effort unrelated to an established
performance measure

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Merit Guidelines

Guidelines for awarding merit raises

that are tied to performance objectives

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Lump-Sum Merit Program

Program under which employees receive

a year-end merit payment, which is
not added to their base pay

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Compensating Salespersons

Salary Commission

Combination Plan

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Straight Salary Plan

Compensation plan that permits salespeople

to be paid for performing various
duties that are not reflected immediately
in their sales volume

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Straight Commission Plan

Compensation plan based

upon a percentage of sales

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Combined Salary and
Commission Plan

Compensation plan that includes

a straight salary and a commission

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Maturity Curves

Experience or performance bases

for providing salary increases
for professional employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Perquisites

Special benefits given to executives;

often referred to as perks

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Executive Perquisites
 company-provided car  kidnap and ransom
 free financial consulting protection
 club memberships  free legal counseling
 use of company plane and  family member travel
yacht allowances
 use of company loges at  home entertainment
sporting events allowance
 low-cost or no-cost loans  payment of children’s
 special travel allowances educational expenses
 limousine service  executive dining room
 estate planning

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

10-27
 Presentation Slide 10-6
Criticisms of Executive Incentive Plans

 Incentive payments are excessive compared with

return to stockholders.
 Time periods for judging and rewarding
performance are too short.
 Quarterly earnings growth is emphasized at the
expense of research and development.
 Emphasis is placed upon equaling or exceeding
executive salary survey averages.
 Benefits do not relate closely to individual
performance.
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
10-28
 Presentation Slide 10-7

Types of Group Incentive Plans

• Teams
• Gainsharing Incentive Plans
– Scanlon Plan
– Rucker Plan
– Improshare
– Earnings-at-Risk

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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Gainsharing Incentive Plans

Scanlon

Rucker

Improshare

Earnings-at-Risk

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Team Incentive Plan

Compensation plan where all team members

receive an incentive bonus payment
when production or service standards
are met or exceeded

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Gainsharing Plans

Programs under which both employees and

the organization share the financial gains
according to a predetermined formula
that reflects improved productivity
and profitability

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Scanlon Plan

Bonus incentive plan using employee

and management committees
to gain cost-reduction improvements

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Rucker Plan

Bonus incentive plan based on the historic

relationship between the total earnings
of hourly employees and the production
value created by the employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Improshare

Gainsharing program under which

bonuses are based upon the overall
productivity of the work team

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Earnings-at-Risk
Incentive Plans

Incentive pay plans placing a portion

of the employee’s base pay at risk, but
giving the opportunity to earn income
above base pay when goals are
met or exceeded

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Profit Sharing

Any procedure by which an employer pays,

or makes available to all regular employees,
in addition to base pay, special current or
deferred sums based upon the profits
of the enterprise

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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 Employee Stock Ownership
Plans (ESOPs)

Stock plans in which an organization

contributes shares of its stock
to an established trust for the purpose
of stock purchases by its employees

Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning

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Employee Stock Ownership Plans
Providing
Pride of
Retirement
Ownership
Benefits

Advantages
Disadvantages
Inability to Buy Lost Tax Revenue
Back Stock

Dependency No Guarantee
Managing Human Resources, 12e, by Bohlander/Snell/Sherman © 2001 South-Western/Thomson Learning
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