OLIVAREZ COLLEGE

Graduate School
Presentation Report

by:
Ms. Mary Ann Glisset Cervaez

In Partial Fulfillment of Academic Requirements in

Masters Degree of
Human Resource Management

Submitted to:
Prof. Bonifacio B. Dellomas Jr.

Second Semester SY 2014-2015

CHAPTER 12 | Recognizing Employee Contributions with Pay

Objectives

Identify the connection between incentive pay and employee performance.

Describe how organizations recognize individual performance.

Identify ways to recognize group performance.

Describe how organizations use the Balanced Scorecard.

Summarize processes that can contribute to the success of incentive programs.

Incentive

It is a reward or promise of payment that encourages a person to take a certain

action, behave better or work harder.

Incentive Pay

It is a pay designed to energize, direct, or control employees behavior.

The amount paid is linked to predefined behaviors or outcomes.

Usually, these payments are in addition to wages and salaries.

Employees, knowing that they can earn extra, often work harder than they might
without the incentive pay.

Additionally, offering higher pay for higher performance may make an organization
attractive to high performers when it is trying to recruit or retain valuable employees.

Principles of Effective Pay Plans

1. Performance Measures should be linked to organizations goals.

If the core of the business is the number of the items being manufactured, the
incentive pay would be designed based on the quantity of items manufactured
by each employee. The downside of this is the focus of the employees might
only be on the performance measures being rewarded and might ignore those
that arent. In the same example, the quantity might have more weight to the
employees rather than the quality of the items produced. The managers of the
organization should be prepared to lay out plans to counter such instances.
Organizations may combine a number of incentives so employees wont focus
on one metric alone.

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay

CHAPTER 12 | Recognizing Employee Contributions with Pay

2. Employees should believe that they can meet the performance standards.

Just like in goal setting, performance standards should be SMART Specific,

Measurable, Attainable, Realistic and Timely. Performance standards should be
something that the employees CAN meet. Setting the bar high is good, but
setting it too high may cause demotivation.

3. Organization must give employees the resources needed to meet the goals.

We cannot expect employees to hit the target if we dont give them a bow and
arrow to use and hit it with. If an organization sets goals for customer
satisfaction, the employees should be empowered to satisfy the customers.

4. Employees should believe that the reward system is fair.

Employees compare their efforts and rewards with other employees. Most, if
not all employees, consider incentives to be fair when the rewards are
distributed according to what the employees contribute.

Recognition of Individual Performance

1. Piecework Rates

Wage is based on the amount the employees produce.

The amount paid per unit is set at a level that rewards employees for aboveaverage production volume.

The advantage is the direct link between how much work the employee does
and the amount the employee earns.

Example: if the average volume produced in an hour is 12 pieces, an employee

who produces more than 12 pieces will have an additional incentive depending
on how much in excess of 12 pieces he produced in an hour.

This is best suited for routine, standardized jobs with output that is easy to
measure.

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay

CHAPTER 12 | Recognizing Employee Contributions with Pay

2. Standard Hour Plans

Pays workers extra for work done in less than a preset standard time.

Encourages the employees to work as fast as they can, but not necessarily care
about quality.

If a certain jobs standard time is 2 hours (like tuning up a car engine), a

mechanic who can do it for 1.5 hours will still get paid for 2 hours.

This can only succeed if the employee wants the extra money more than they
want to work at a pace that feels comfortable.

3. Merit Pay

Links increases in wages or salaries to ratings on performance appraisals.

Gives the biggest pay increase to the best performers and to those whose pay is
relatively low for their job.

This type of pay is individualistic and may discourage team work. Management
may include cooperation and team work as part of the metric to ensure that
the employees appraisals are not based solely on individual performance but
with the groups and the organizations vision as well.

4. Performance Bonuses

Similar to Merit Pay because employees are paid based on meeting individual
goals, but they are not rolled into a base pay.

Employees must re-earn them during each performance period.

This rewards individual performance, but the bonus is not rolled into the base
pay. The employee must re-earn during each performance bonus.

Bonuses for individual performance can be extremely effective and give the
organization great flexibility in deciding what kind of behavior to reward.

The metrics/criteria to receive a performance bonus may be changed by the

organization from time to time depending on what they deem is necessary.

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay

CHAPTER 12 | Recognizing Employee Contributions with Pay

5. Sales Commissions

An Incentive pay calculated based in a percentage of sales closed by a sales

person.

Some sales people earn a commission in addition to a base salary.

Others earn only commissions a pay arrangement called straight commission

plan.

Straight commission is common among insurance and real estate agents and car
sales people.

Other sales people earn no commissions at all but a straight salary.

Paying most or all of a salespersons compensation in the form of salary fees

may encourage customer good will.

Paying most or most of a salespersons compensation in the form of

commissions encourages people to close sale.

Differences in salespersons compensation directly influence how they spend

their time, how they treat customers and how much the organization sells.

Recognition of Group Performance

1. Gain Sharing

Measures increases in productivity and distributes a portion of each gain to

employees.

The company's current performance is compared to its historic performance

(baseline period). The savings above the baseline period determine the gain or
loss.

Gain Sharings goal is to improve performance and eliminate waste (time,

energy, and materials) by motivating employees to work smarter as a team
rather than just working harder.

In other words, a company shares with employees the savings from improved
performance.

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay

CHAPTER 12 | Recognizing Employee Contributions with Pay

2. Group Bonuses

Rewards the members of the group for attaining a specific goal, usually
measured in terms of physical output.

These are much like piecework rates where the incentive is based on the
number of output, but this time, it is a collected group effort.

3. Team Awards

Similar to group bonuses but are more likely to use a broad range of
performance measures, such as cost savings, or a successful completion of a
project.

These are more complex because there is a lot more metrics to meet.
Examples are cost savings, successful completion of a project or even meeting
deadlines.

Group bonuses and team awards both encourage the team/group members to
cooperate so that they can achieve their goal.

However, depending on the reward system, competition among individuals may be

replaced by competition among groups.

To avoid this, the organization should carefully set the performance goals for these
incentives so that concerns for costs or sales foes not obscure other objectives such as
quality, customer service and ethical behavior.

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay

CHAPTER 12 | Recognizing Employee Contributions with Pay

Balanced Score Card

Balanced Scorecard is a combination of performance measures directed toward the

companys long and short term goals and used as the basis for awarding incentive pay.

A balanced scorecard helps employees understand the organizations goals, by

communicating the balanced scorecard to employees, the organization shows
employees information about what its goals are and what it expects employees to
accomplish.

Any form of incentive has advantages and disadvantages. Relying exclusively on merit
pay or other individual incentives may produce a workforce that cares greatly about
meeting those objectives but competes to achieve them at the expense of cooperating
to achieve organizational goals.

A balanced Score card must look at the four important perspectives in the
organization:

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay

CHAPTER 12 | Recognizing Employee Contributions with Pay

What would make incentives work?
Employee Participation in Decisions can be a general move toward employee empowerment.
-

Employees have hands-on knowledge about the kinds of behavior that

can help the organization perform well.

If employees are involved in decisions about incentive pay plans and

employees eligibility for incentives, the process of creating and
administering these plans can be more complex.

Communicating with Employees is also important because it demonstrates that the pay plan
is fair and helps them understand what is expected of them.
-

When employees understand the requirements of the incentive pay

plan, the plan is more likely to influence their behavior as desired.

Employees tend to feel concerned about changes. That is why, reasons

for change should be communicated to the employees so they will be
more open to accepting it.

Cervaez, Mary Ann Glisset

Chapter 12|Recognizing Employee Contributions with Pay