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Developing an incentive scheme for a project

Article · January 1983

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.;;.. __ '""C
~‫ג‬. XI"
Decem ber i 983
Page 228
Developing An Incentive
Scheme For A Project
Shlomo Globerson
Tel Avjv University
Introductio ‫מ‬
Motivational needs of individuaJs who worl( in
project e ‫ ח‬vii'onments may differ from those of in -
dividuals working in different organizational en -
vironments; however, bOLh managers and employees
who are involved with research and development feel
that incentive schen1es should be developed for them
as well (See references [3J [9) [18J). Renwick and
Lawler [20] found that lack of proper pay was ranked
as a chief cause for dissatisfaction at work. This find -
ing emphasizes that paymellt level is a significant fac -
tor affecting the amount and quality of employees '
efforts. The desire to earn more money may come
from economic needs or from the individual equating
monetary reward with the organization's recognition
of his ability .
It is also well-known that empJoyees can increase
their productivity significantly if they receive a fair
share of the added output . ‫'ן‬his was verified by a
survey administered by Fein [5), who reported the
average !evel of prodllctivity jumped from 86,4 per -
cent to 123,5 percent; that is, al1 increase of 42.9 per -
cent was witnessed when an incentive scheme was in -
stalled. This indicates that although incentive
schemes are not the only means of improving perfor -
mance. they obviously can have a significant impact .
It is important, however, to point out that most of .
the organizations that participated in Fein's survey
were probably production departments in manufac -
turing and service organizations, as compared to high
technology. research and development, and project
oriented organizations .
Very few cases of using an incentive scheme in a
project environment have been published, the one
reported by Parkinso ‫ ( ת‬19) being an exception .
The next section review$ the major stages in
developing a wage incentive scheme; a definition of
each stage is followed by a general discussion of im -
plementation problems, ending with an implementa -
tion analysis in a project environment .
page 34
Nd. Y ‫ך‬
Stages i ‫ מ‬Developing an Incentive Scheme
Developmel1t of any incentive scheme requires the
following stages ;
1. Generaling a relevant list of PCs (PCs = Perfor -
mance Criteria, PC = Performa ‫ ח‬ce Criterio ‫)ח‬
2. Choosi ‫ ח‬g the preferred set
3. Measuri ‫ ח‬g prese ‫ ח‬t performa ‫ ח‬ce
4. Assig ‫ ח‬ing standards 10 the chosen criteria
5. Formulati ‫ ח‬g tlle i ‫ ח‬ce ‫ ח‬tive equatio ‫ח‬
The following raises and discusses methodological
issues in the implementation of the stages, as welI as
possible ways to overcome some of the
methodological difficulties .
1. Generating a Relevanl List
Since we are concerned with evaluating the perfor -
mance of an organizatio ‫ח‬, many PCs may be con -
sidered releva ‫ ח‬t. Examples of such criteria are cost
per item, percent of defects, and turnover rate .
'‫ז‬heoretically, one may argue that a long list of possi •
ble PCs Inay be generated for an organization, ~ ut
for practical purposes \ve ma)1 find it diffiCUlttto
generate a list of more than a few dozen relev nt
criteria .
An importa ‫ ח‬t issue in developing output orien ed
PCs is the ge ‫ ח‬eratio ‫ ח‬of a PCs hierarchical system .
First, this entails designing PCs for each elementtry
u ‫ ח‬it accordi ‫ ח‬g to the Work Breakdow ‫ ח‬Struct re
( WBS) of the project. PCs are ‫ ח‬ext generated at the
upper levels by integrating some of these lower level
units. However, as Martin [16] points out, it is im •
portant to make sure that there is only one set of a
PCs system. s which are interrelated one to the otler
without unnecessary duplication .
Since projects are generally o ‫ח‬e-time operatio ~ s ,
they do ‫ח‬ot le ‫ח‬d themselves as readily to the develdp -
ment of a PCs system. Woodward [23] identifies two
compleme ‫ ח‬tary approaches which may be used for
performance evaluation in this context; one is con -
cerned with output and the other with the process .
The oulput oriented approach is based on
PROJECT MANAGEMENT QUARTERLY
 Page 229
measurement, using quantifiable inputs, outputs ,
and their derivatives. Typically, PCs belonging to
this category relate to time, cost, and the quality of
the project. Each PC is evaluated through co ‫ז‬n -
parison of the actual value to a designated standard ,
e.g., actual completion time (or cost) to the planned
time, and the project's actual technological proper -
ties to its planned specifications. The importance of
following the above PCs can be demonstrated by
Baker and Fisher [1] who note that project expen -
ditures that double the original budget are a commbn
event or Goff [11], who supports tl ‫ו‬is claim and
stresses that many government projects reach expen -
ditures of three times the original budget .
The process oriented approach stresses the impor -
tance and in ‫ ח‬uence of the process throughout the
project Iife cycle, and its successful completion. The
work process ref'ers to the activities al ‫ו‬d equipment
required to convert input into outputs, taking into
consideration the required rescurces, and the order
and methods of performing tne activities .
The characteristics of the process oriented ap -
proach depend t,o a large extent on behavior,al
dimemsions. Hence, performance assessment may be
concentrated on an employee's evaluation procedure
as it relates to attributes such as attitude, ability to
communicate, accuracy, and creativity. Kerzner [14J
presents different forms with possibie attributes ap -
plicabie to employees working in a project environ -
ment .
To sum up this section, we may conclude that out -
put and process oriented PCs are both needed for a
proper evaluation of the project .
2. Choo:;;ingthe Prejerred Set
Since a long list of PCs can be generated, questions
arise as to how many PCs to include in the scheme ,
and how to choose the PCs to be included .
There is no magic number of PCs that a scheme
should contain; however, since each PC creates some
wo ‫ז‬kload, it is common practice to avoid introducing
too many. For example, Galinka, Globerson and
Oron [7] found, among organizations using incentive
schemes, a maximum of seven PCs being used, with
three the most frequent number cited .
Although any selection p ‫ 'ז‬ocess is based on the
assumption that management has implicit knowledge
of the best PCs to be selected, it is stiII beneficial to
call management's attention to several selection
guideli ‫ ח‬es. The following guidelines are based on the
author's experience and on previous studies [2 ] [4 ]
PROJECT MANAGEMEN"r QUARTERL Y
December 1983
[ 13], and are relevant to project environments :
• PCs must be derived from the company's objec -
tives .
• PCs make possible the comparison to organiza -
tions that are in the same business .
• The purposes of the PCs must be clear .
• Data collection and calculation methods of the
PCs must be clearly defined .
• Ratio PCs are preferred to absolute ones .
• PCs should be under the control of the evaluated
organizational u ‫ ח‬it .
• PCs should be selected through disctJssion with
the people involved .
• Objective PCs are pl'e"erred to subjective ones .
• Selected PCs must include productivity PCs
( ratio of output to input), quality (nature of out -
put), and process oriented PCs .
Although objective PCs are preferred 10 subjective
ones, there is ‫ח‬o choice but 10 use subjeclive PCs if
the process oriented approach is desired. Results of
the case study presented later in this article confirm
that employees prefer to have a subjective PCs
system to no PCs system at all. More relevant subjec -
tive PCs may be related to the activities which have to
be performed throughout the project life cycle ;
Roberts and Fusfeld [21] idel ‫ ך‬tify six typical innova -
tion project stages, each of which needs different
behavioral attributes in order to be completed suc -
cessfully. The six stages are: 1) pre-project; 2) project
possibilities; 3) project initiation; 4) project execu -
tion; 5) project outcome evaluation; and 6)' project
transfer. These six stages ‫ ח‬eed direct inputs from the
following five critical behavioral functions: (1) idea
generating; (2) entrepre ‫ ח‬euring; (3) project leading
and coordinali ‫ ח‬g; (4) gatekeeping (information
galhering and channelillg); and (5) coaching less ex -
perienced personnel. These functions represent the
various roles that must be carried out for the suc -
cessful completion of innovation projects. Itis im -
portant to recognize the functions among the dif -
ferent project stages, and 10 idenlify sOlne relevanl
measures for each of Ihem .
3. Measliring Presenl Perjorl ‫ ןז‬ance
Present performance of each of the chosen PCs
must be measured before standards, or satisfactory
levels of performance, can be established. There are
two reasons for this. First, if a PC proves to be dif -
ficult to measure either an alternative means f‫ק‬
measuring must be employed or a more easily
measured PC must be used. Second, a knowledge of
page 35
 December 1983 Page 230
the present level of performance for each of the
chosen PCs must be identified, since this information
has to support the decision concerning the desired
standard for each criterion .
A1though a proper performance measurement
system is a very important managerial tool for effec -
tive project management, a ‫ ח‬organization must avoid
perforlnance measurement systems which are too
detailed. Ger10ff [8], who analyzed 108 projects, co ‫ח‬-
c1uded that too tight and detailed project control may
‫ סח‬t be effective. and may actua11y lead to undesired
changes in the project's objecti\'e .
Since process related PCs i ‫ ח‬volve human at -
tributes, there is a need to develop proper ernployee
evalution routines and forms. Kerzner [14J points out
that a major difficulty in evaluating employees work -
ing in a project environment is due to the fact that
they usual1y have several bosses, depending on the
number of projects in which they are involvcd. An
employee evaluation usually involves a discussion
between the supervisor and the subordinate, together
with a written summary which is referred to by the
name, "the evaluation form." Examples of various
types of project oriented evaluation forms are
. presented by Kerzner [ 14 ].
4. Assigning Standards to the Chosen Criteria
Standards are used to indicate the satisfactory level
of performance, above which an incenti've is paid. An
appropriate standard has to be higller than the pre -
sent average performa ‫ ח‬ce, but still be attainable if it
is to encourage continuous improvement. Also. there
must be simple and logical techniques by which stan -
dards can be revised .
~ ossible techniques for assigning standards to PCs
include :
• Work measurement techniques: nlethods such as
time study, predetermined time standards, and
work sampling (See Mundel [17). These techni -
ques are used for determining standards for oniy
one PC, mainly efficiency as expressed by the
ratio of assigned time to actual time .
• Analysis 0/ past organizational per/ormance :
data for each PC may show deviations of the
value of the PC. and a!so trends that can be
depicted by a learning curve. Based ‫ חס‬this
analysis a relevant standard may be assigned .
• Manageme ‫ ח‬t by objectives approach: assignment
of standards or objectives is based on different
considerations such as needs, abilities, and
availability of resources. The specified objectives
‫ ן‬1II1e ‫חן‬
are usually a result of a grollp analysis and
discussion .
• Dala comparison: between organizations with
similar characteristics such as type of business ,
technology, or environment (e.g., insurance
companies, textile factories). An organization
may assign standards based on its own standing
as compared to other organizations .
• Econofnic considera(ion ~i: profit may be ob -
tained if expe ‫ ח‬ses do ‫ ח‬ot exceed a certai ‫ ח‬level .
This level (or levels), if the operation is broken
down according to ‫ ח‬eeded resources(manpower ,
energy, material, etc.), may be considered a stan -
dard or standards .
• Legal considerations: the iaw may state required
performance levels for specific PCs. In this case ,
the standards have to meet those stated by law .
Since subjective estimates are probably very com -
m.on in project standard setting, it is important to in -
vestigate the discrepancy between the standards as
they were set by the people involved, and the actual
performance level. A survey conducted by Baker a ‫ ח‬d
Fisher (1) shows that among 450 project budget plan -
ners, the main reasons for mistaken estimates of pro -
.ject cost are insufficient data, vague defi ‫ ח‬ition of
project objectives, and lack of experie ‫ ח‬ced person -
nel .
Another issue which. may complicate the standard
setting in a project environment is the frequent revi -
sions which may occur in design or scheduling, and
result in different time and cost structures. Standards
have to be revised accordingly, and it becomes dif -
ficult to evaluate the performance to date on the
basis of the previousiy valid standards. As standa ‫ 'ז‬ds
for the output oriented PCs tended to be dynamic ,
and therefore harder to deal with, they should be
supported by process oriented PCs which tlse
behavioral attributes. The standards for the
behavioral attributes may be based either ‫ חס‬the
average of all the employees, or on the previous per -
formance of the evaluated employee .
5. Formulating the Incentive EQuation
The incentive, which is the value added to the base
salary. is a fu ‫ח‬ction of the value of all the PCs and
their assig ‫ ח‬ed sta ‫ ח‬dards. A very importa ‫ ח‬t part of ip -
centive scheme design is the formulation of the equ ~-
tion used to calculate the incentive. Some examples
of equations can be found in Globerson [1OJand Fein
[6J .
The fo110wing is a simp1e example of an i ‫ח‬centive
‫חח‬ 'r -r , ,
A I __ , ._" '''T" " 0 ••• , .~ ••.•••••
 Page 231 December 1983

scheme based ‫ חס‬tW‫ ס‬PCs : PL1 at which there is maximum penalty (n ‫ס‬
b ‫ חס‬us paid)? This fU ‫ח‬cti ‫ חס‬may be a li ‫ח‬ear ‫ ס‬r
INC = (Eff - 1(0) R (1)
n ‫ ןחס‬inear fu ‫ח‬cti ‫ ס‬n .
where INC: percent ‫ ס‬f i‫ ח‬centive ‫ ס‬r the value added The example described ab ‫ ס‬ve is releva ‫ ח‬t t ‫ ס ס‬utput
t ‫ ס‬the base salary ‫ס‬rie ‫ח‬ted PCs. The next secti ‫ס‬n describes a case study
Eff: the efficie ‫ ח‬cy, which is Ihe rati ‫ ס ס‬f ‫ ס‬f a pr ‫ ס‬cess ‫ ס‬riented incentive scheme based ‫ ס‬n the
assig ‫ ח‬ed time ‫ סן‬actual time multiplied results ‫ ס‬f empl ‫ס‬yees' evaluati ‫ס‬n. A complete descrip -
by 100 ti ‫ ס‬n ‫ ס‬f the study may be f ‫ ס‬und in Shapira and
GI ‫ ס‬bers ‫ ס‬n [22 ].
R: the resp ‫ חס‬se time fact ‫ ס‬r expressed as a
fu ‫ ח‬ctio ‫ ס ח‬f the pr ‫ס‬jecI le ‫ ח‬gth. A possi -
ble· functio ‫ ח‬is described i ‫ ח‬f"igure 1 The Case Study
This secti ‫ ס‬f ‫ נ‬describes an existing individuaJ illcen -
Figure 1 tive scheme, which is used by a project oriented
Resp ‫ חס‬se Time Factor R as a FU ‫ח‬cti ‫ חס‬of Pr ‫ס‬ject research a ‫ח‬d devel ‫ ס‬pme ‫ ח‬t ‫ ס‬rga ‫ ח‬izati ‫ חס‬which
l,e ‫ח‬gth (nlo ‫ ח‬ths ) devel ‫ ס‬ps eJectr ‫ ס‬mecha ‫ ח‬ical pr ‫ ס‬ducts. The ‫ ס‬rganiza "
R
ti ‫ ס‬n employs about 500 pers ‫ חס‬s, includi ‫ח‬g scie ‫ ח‬tists ,
1.5 e ‫ ח‬gineers, technicians, a ‫ ח‬d administrative staff. The
incentive scheme is based ‫ ס‬n the results of empJ ‫ ס‬yees '
1.0+- __ ••... evaluati ‫ ס‬n with. regard ‫ סן‬ch ‫ ס‬sen behavi ‫ ס‬ral at -
Iributes. The scheme includes tW‫ ס‬subschemes , ‫ ס‬ne
for empJ ‫ס‬yees and one f ‫ ס‬r managers, with a c ‫ס‬mm ‫ ס‬n
0.5 part. Only the employees' subscheme is rcported in
PL this sectio ‫ח‬. A f ‫ס‬rm (See Figure 2) is used f‫ ס‬r
0.0 •.•.••
--r--r----r --‫ד‬--- -y- ---"'‫ל‬--~ d ‫ס‬cumenting Ihe evaluati ‫ס‬n results .
2 3 4 5 6 Group 1 01 PC. There are five general weighted
perf ‫ ס‬rma ‫ח‬ce criteria (weight is given in brackets ):
T ‫ ס‬ge ‫ח‬erate the resp ‫ ס‬nse time factor fU ‫ ח‬cti ‫חס‬,
1. Discipline at w ‫ס‬rk ( 15)
ma ‫ח‬age ‫ ז‬ne ‫ ח‬t has to a ‫ ח‬swer the foll ‫ ס‬wi ‫ח‬g questio ‫ ח‬s :
2. Pr ‫ ס‬fessi ‫ חס‬al knowledge relevant t ‫ ס‬the last
• What is the critical project le ‫ ח‬gth (PL ‫ )ן‬ab ‫ ס‬ve peri ‫ ס‬d' s projects ( 30 )
which the ince ‫ ח‬tive achieved by the efficie ‫ ח‬cy 3. Human relations ( 15)
fact ‫ ס‬r has t ‫ ס‬be reduced? F ‫ ס‬r example, let us 4. Production and quality of perf ‫ ס‬rmance (20 )
assume that Eff = 120. The b ‫ ס‬nus, based ‫ ןחס‬y 5. Dedicati ‫ חס‬at work and resp ‫ ס‬nsibility ( 20 )
‫ חס‬efficiency, is 120 - 100 = 20070. 1f ‫ןח‬a ‫ח‬age -
me ‫ ח‬t decided that PL ‫ = ן‬1.0, and the actual pro - A relative weight is assigned ‫ סן‬each criteri ‫ ס‬n s ‫ס‬
ject le ‫ח‬gth was ‫סן‬nger tha ‫ ח‬1.0 m ‫ חס‬th, Ihe bO ‫ ח‬LIS that the t ‫ ס‬taJ \veight equals 100. The weights ‫ 'ןס‬the
paid w ‫ ס‬uld be less tha ‫ ח‬20 o o • criteria were assig ‫ ח‬ed by a management c ‫ס‬mmittee ,
a ‫ח‬d the results \vere appr ‫ס‬ved by the empJ ‫ ס‬yees .
• Is ma ‫ ח‬ageme ‫ ןח‬willing (0 pay more f ‫ ס‬r faster
Assig ‫ ח‬me ‫ ח‬t ‫ ס‬f weights t ‫ ס‬the criteria was based ‫חס‬
c ‫ ס‬mpleti ‫ חס‬tha ‫ ח‬PL ‫ חן ?ן‬this example, ma ‫ח‬age -
relative imp ‫ ס‬rta ‫ח‬ce a ‫ח‬d the p ‫ ס‬te ‫ ח‬tial impact that
me ‫ח‬t decided l‫ סן‬t ‫ סן‬pay a ‫ ח‬additi ‫ חס‬al b ‫ חס‬us f ‫ ס‬r
they ‫ןח‬ay have ‫ ס‬n the success ‫ ס‬f performi ‫ח‬g the j ‫ ס‬b
c ‫ס‬mpleting the pr ‫ס‬ject bef ‫ ס‬re PL ,.
under evaluation .
• Whal is the crilical project Iength (PL,) after Each criterion c ‫ ס‬nsists ‫ ס‬f 4 subcriteria (As can be
which a b ‫ס‬nus will n ‫ ס‬t be paid despite high effi - see ‫ ח‬in Figure 2). A 7-p ‫ ס‬i ‫ ח‬t scale f ‫ ס‬r each sub -
ciency? In this example, if PL, = 6.0 m ‫ס‬nths criteri ‫ ס‬n is used f ‫ ס‬r evaluati ‫ ס‬n, where 4 is the ‫סן‬west
a ‫ח‬d the actual le ‫ח‬gth is 7.5 , ‫ סח‬thi ‫ח‬g w ‫ ס‬uld be grade and 10 is the highest. The meani ‫ח‬g ‫ ס‬f each
paid eve ‫ ח‬though a 20070 bo ‫ ח‬us would be i ‫ח‬- grade is defi ‫ ח‬ed i ‫ ח‬Figure 2. The grade is assig ‫ח‬ed by
dicated based ‫ חס‬efficie ‫ח‬cy al ‫ חס‬e . the ma ‫ ח‬ager ‫ ס‬f the evaluated pers ‫חס‬.
• What reducti ‫ חס‬fU ‫ח‬cti ‫ ס‬n sh ‫ ס‬uld be used bctwee ‫ח‬ The f ‫ ןס‬l‫ ס‬wi ‫ח‬g equati ‫ חס‬is used f ‫ ס‬r calculati ‫ח‬g the
Ihe p ‫ ס‬i ‫ח‬t PL, at which there is ‫ סח‬penalty, a ‫ח‬d Gr ‫ ס‬up 1 efficie ‫ח‬cy fact ‫ ס‬r f ‫ ס‬r each empl ‫ ס‬yee k :

PROJECT MANAGEMENT QUARTERL Y pageJ ‫ך‬

l)ccel ‫ ןך‬bcr 1983 Page 232

5 4 For example, the nUlnerical value of Ihe efficiency

E E factor of equatio ‫ ( ח‬2), whe ‫ ח‬o ‫ ח‬e uses the values cir -
G I EFF(k ) ~~‫_נ‬j = ~~~~ i, j) W(i ). (2) cled ill Figure 2, is :
4 {)
where I
GIEFI;(k) = --- [(9+ R + 1() + 7)\ 15 +
i: criterion number 4()
j: 5ubcriterio ‫ ח‬11un1ber (7 + 6 + 5 + 9) x 30 +
PC(k, i, j): grade of e ‫ז‬np]oyee k 011 5ubcriterion j (8 + 9 + 6 + 6) x 15 +
\ vithi ‫ז‬1 crtieriorl i (6 +,6 + 9 + 7) x 20 +
W(i): relalive \veight 01' cri ‫ ז‬erio ‫ ח‬i (Wi = 1(0 ) (5 + 9 + 9 + 7) x 20] = 72.875
Sincc each crilerion Inay obtai ‫ רז‬a J ‫וו‬3ximum grade of
40 points (4 sllbcriteria wi!h a ‫ ךךן‬aximL ‫ נ‬m of 10 points GIEFF = 72.8 5
each), the value of the denomirlator is 40. Thl ‫ נ‬S ,
G 1EFF(k) \vill be \vitl ‫ ו‬iI‫ ן‬t !‫ ו‬e range ( Note that tlle va!Lles ci ‫ז‬- c !‫ז‬:d r"erlrescI ‫ ך‬t I!IC rerf"c)r -
o (. GIEFF ( 100 manc'e of a specif'ic ‫ ןןז‬p!oyec .)

Figure 2
Eva]uation Form
Group 1 of Performa ‫ ח‬ce Criteria (for emp]oyees and managers )

1. Discipline
a.
b.
Comes
Works
At Work
to work ‫ חס‬time .
all the time .
1
10
< 9Q) ‫ד‬ 8 7 6 5 4
6 5 4
3
3
c. Doesn't ]eave before time . @ 987654 3
d. Works according 10 regulations . 10 9 (2)6 5 4 3
2. Professional Knowledg :
a. Able to apply krlow]edge as expected in 10 9 (j)6 5 4 3
view of salary and professional standing .
b_ Able 10 solvc problems under constraints . 1098 7 @5 4 3
c. -Capable of solviIlg u ‫ ח‬expected problems . 10 9 8 7 (D4 3
d. Does ‫סח‬t repeal rnistakes . 1«V8 7 6 5 4 3
3. Human Relatio ‫ח‬s
a. We]1 integrated in the group's activities . 10 ~‫ד‬ 6 5 4 3
b. Contributes 10 advance group tasks . ‫ג‬ c(V8
7 6 5 4 3
c. Has good relatio ‫ ח‬s wilh co-workers . iO 9 8 7(6)5 4 3
d. Ready 10 do any lask . 10 9 8 7~ 5 4 3
4. Production And Quality Of Performance
a. High productive employee . 10 9 8 ‫~ך‬ 5 4 3
b. Output is of high quality 10 9 8 7i 6 5 4 3
c. Inlerested in improving processes a ‫ח‬d 1(V8 ‫ך‬ 5 4 3
work methods .
d. Plans his activities properly . 10 9 (2)6 5 4 3
5. Dedication And Responsibility
a. Prepared to carry-out complicated tasks . 10 9 8 ‫( ד‬V4 3
b. Dedicated 10 his job . 1~ 8 ‫ד‬ 6 5 4 3
c. Very responsible . 198 7 654 3
d. Mai ‫ ח‬tains equipment and material properly . 10 (2)6 5 4 3

( Conti ‫ ח‬ued ‫ חס‬next page )

page 38 PROJECT MANAGEMENT QUAR ‫ז‬I:RL )

 Page 233 December 1983

( Figure 2, continued )
Group 2 of Performal ‫ו‬ce Criteria (only for managers )

1. We!l-organized . 10 (8h 6 5 4 3
2. Decides intelligently and deliberately . 10 9 ‫י‬ 6 5 4 3
3. Defines objecti'/es and motivates to achieve 1098 i~)5 4 3
them .
4. Plans tasks properly, and according to 10 9 (2)6 5 4 3
management priorities .
5. Known as a "good example" to subordinates .
6. Ascertains that tl1ings are done proper!y .
7. Contributes to creative and good at ‫ ןח‬osphere .
8. Ascertains that employees do what they are
10 9
109
10 9
10 9(!j
S6
8 7 (D4
5 4
7 6 5 4
6 5 4
3
3
3
3
supposed to do .
9. Ascertains that materials, equipment, and 1c(?)8 7 6 5 4 3
machines are ‫ן‬.Jsed properly .
] 0. Passes reliable informat !‫ ס‬n ‫ חס‬ti n e . @ 987654 3
~-------------------------- r------------- ~ ------------------J- -----‫ר‬
Grade Scale Employee's Load Level
10 excelle ‫ ח‬t load level load factor
9 very good ‫ח‬O load 1.00
8 good slight load 1.05
7 above average moderate load 1.10
6 average extreme load 1.20
5 below average
.4 bad
3 ‫ ח‬ot relevant

Main Subject/Project this employee has dealt with this month:

Comments:

Name ("irst, last) Number Signature Date

The evaluated
person

The evaltJator

Employee's Incenfive Scheme. The following are the EFF(k) = G I EFF(k) x LF(k) (3)
steps in calculating the emp!oyee's incentive: Continuil ‫ו‬g the previous numerical example, in
a. Caiculate G 1 EFF(k) for employee k by using which G 1EFF = 72.875, if the employee load factor
equation (2). is LF = 1.1, then
b. Evaluate the emp!oyee's work load and assign a
EFF(k) = 72.875 x 1.1 = 80.1625 .
load factor (LF); See Figure 2.
c. Calculate the efficiency of employee k, EFF(k), d. Calculate the bonus, BONUS (k), ,'or employee
by using the following equation: k by using the following formula :

PROJECT MANAGEMENT QUARTERL Y page 39

Decelnbcr 1983
1 • G ‫י‬rNi‫ס‬ m
-
Page 234

BONUS (k) CAKE EFF(k); (4)
M w ‫ ס‬rk with ‫ ס‬ut such a scheme. Pr ‫ ס‬vided there is any
. 'E EFF(i);
1= 1
where,
M: number ‫ ר!ס‬employees irl that department
CAKE: the amount of money assigned for
b ‫ חס‬uses i ‫ ח‬that department
In order 10 find the emp!oyee's bO‫ ז‬1US, tl ‫ו‬e EFF(i) for
a!l the ernployees in that depaI·tmc11t has to be
calculated, a ‫ ח‬d the amount of the "CAKE" to be
divided among a]1 the en ‫ ר‬ployees has to be deter -
mir ‫ו‬ed. For example, if C.A.KE = $15,000 and there
are 6 employees i‫ ח‬tlle (iepal'tme ‫ ח‬t with EFF'(i) as
fol!ows ,
EFF(J) = 115 EFF'(2) = 120 EFF ( 3 ) = 80
EFF (4) = 60 EFF(5) = 95 EF'F (6 ) = 110
then the bOn\lS for employee 3 is :
BONUS (3) = 15000
Jl5 + 120 + 80 + 60 + 95 + 110
x 80 = 2068
After using the incentive scheme for two years, the
c ‫ ס‬mpany decided to evaluate the in ‫ו‬pact ‫ס‬n its
employees and managers. The f'ollowing concltlsions
were derived from questi ‫ס‬nnaires t }‫ך‬,:! the par -
ticipants were !'equestedto complete ,
1. Participants believe that the scl ‫ו‬eme increases
the manager's power significant!y ,
2, Althougll a majority of botr ‫ ו‬e ‫ ןןז‬ployecs ancl
managej's are in favor o!' cl‫ ר‬ntinuing the scheme ,
tlle managers' view is more favorab!e than the
employees'. A possible expla ‫ ח‬ation is that the
incentive scheme benefits marlagers m ‫ ס‬re tha ‫ח‬
employees; managers and en ‫ו‬p!oyees both get
bonuses, but managers also have power since
they decide ‫ ס‬n the reward level .
3. The eva!,uation form is c ‫ ס‬n.sidered ‫ סן‬be a
reliable source of information and it re ‫ ח‬ects ac -
tual achie\'ement.s .
To conclude the case study it may be stated that it
is possible t ‫ ס‬develop a!l incentive scheme even for
research and development projects which may be
considered more c ‫ ס‬mplicated then ‫ ס‬ther types ‫ ס‬f pr ‫ס‬-
jects, such as c ‫ ס‬nstruction pl·ojects. The case study
also p ‫ס‬.ints ‫ ס‬t1t that in spite of a!1 the problen ‫ ך‬s raised
by the use of a subjective evaluation system, people
prefer t ‫ ס‬work \vith a ‫ ח‬incentivc scheme wtlich is
seri ‫ ס‬usly prese ‫ ח‬ted a ‫ ח‬d impleme ‫ ח‬ted, rather tha ‫ח‬
kind of periodic evaluation procedure in the
organization, an incentive scheme can be tied to it .
C ‫ חחס‬ecting the incentive scheme t ‫ ס‬the evaluati ‫ ס‬n
procedure assures, among other things, that the
evaiuati ‫ חס‬will be taken seriously by both empl ‫ ס‬yees
and managers with a]] the consequences attached 10
it, such as specific feedback t ‫ ס‬the employee concel'n -
ing potential areas fOfr in1provement .
Finallv a seri ‫ ס‬us rawback is the difficulty that
the comp ~ n.y faces if it wants ,to ~va.luate the impact
‫ ס‬f intr ‫ ס‬duclng trle sc eme. It IS dlfflcu!t t ‫ ס‬compare
t!le "before" and 'Iaft( ~r," because the comp!ete
I1ature of the \vork cl1a ‫ ח‬ges cO!‫ ו‬ti ‫ ח‬uously .
Conclusions
Wage incentive schemes can be applied to
‫ ס‬rga ‫ ח‬izations deaJing with n ‫ ס‬nrepetitive activities
s ‫ז‬Jch as projects, but it remains difficult to evaluate
tl‫ ך‬e impact of such a scheme ‫ס‬n perf ‫ס‬rmance. This is
especially true if the PCs are derived only from the
pr ‫ ס‬cess ‫ ס‬riented appr ‫ ס‬ach. Further research is need -
ed in the area of investigating the relationship be -
tween behavioral patterns of empl ‫ ס‬yees i‫ ח‬v ‫ןס‬ved i‫ ח‬a
project environment, and the level of perforn1ance
e)(pressed in input-output terms. Questi ‫ס‬ns such as ,
" Is there a significant correlati ‫ ס‬n between 'positive '
changes in behavi ‫ ס‬ral attributes and successful c ‫ ס‬m -
pletion of the pr ‫ס‬ject?" have t ‫ ס‬be answered before
ma ‫ ח‬agcrs can be convinccd that the efforts are
jLlstified. lnspite of the lack of evide ‫ ת‬ce regar'di ‫ ת‬g
the am ‫ס‬u ‫ ח‬t of impr ‫ס‬vement that a company can look
forward to after introducing an incentive scheme, it
is obvi ‫ס‬us that such a scheme increases the n1‫ס‬tiva -
tion of the employee to use a gl'eater part of his
p ‫ ס‬tential f ‫ ס‬r the c ‫ ס‬mpany's needs. C ‫ ס‬nsequently, a
conlpany may find that the benefits reaped by in -
tr ‫ ס‬ducinga wage incentive sclleme far outweig!1 any
increases incurred in salary C ‫ס‬sts .
References
1. Baker, B., & Fisher, D., Cost Growth: Ca ‫ז‬1 It Be
Co ‫ ח‬trol!ed'?, Projec( Manage ‫ ןזו‬elll Quarrer/y ,
1974,5 , 2-3 .
2. Berczi, A., Improving Public Sector Manage .
me ‫ ח‬t Perf ‫ ס‬rmance, l'vfanagement InterflGtional
Revie;v , 1978 , 8.
3. Dessaver, J. H., H ‫ ס‬w a Large Corporation

page 40 PROJEC ‫ ז‬MANAGEMEN ‫ ז‬QUAR ‫ז‬ERL Y

 Page 235 December 1983

Motivates its R&D People, Research Manage - . 15. Martin, C.C., roject Management, American
ment , 1974 , 14 . Management A sociation , 1976 .
4. Eilon, S., Some Useful Ratios in Evaluati ‫ ח‬g Per - 16. Martin. M.D., Lenz, J., & Glover, W., Uncer -
formance, Omega , 1979 , 7. tainty Analysis for Program Management, Pro -
5. Fein, M., Work Measurement and Wage Inc:en - ject Manageme t Quarterly , 1975,3 .
tive, Industrial Engineering , 1973,5 . 17. Mundel, M.E., Motion and Time Study ,
6. Fei ‫ח‬, M., Financial Ince ‫ ח‬tives, in Handboo ~~01 Englewood Cli s, NJ: Prentice-Hall , 1978 .
Industrial Engineering, edited by Gariel Salve ‫ח‬- 18. Noyce, R.N. ( n intervie\\' with), Creativity by
dy, New York: John Wiley and Sons , 1982 . Numbers, Har rd Business Review , 1980 . 58.
7. Ga1inka, 0., Globerson, S., Oron, N., The Use 19. Parkinson, D., Productivity Incentive on
of Mu1tiple [ncentive Schemes, Americ'an In - Sites, Cost Engineer -
stitufe jor Decision Science.5 Conjerence Pro -
ceedings, San Antonio , 1983 .
ing, 1979.21.
20. Ren\vick, P.A.,
r.
Engineering Construction

Lawler, E.E., What You Real -

8. GerJoff, L.A., Performance Contol in Govern ·
ment R&D ‫ ין‬rojects, IEEE Transactions, I ‫ ן'ןל‬3 ,
EM-20 .
9. Gerstenfeld, A., & Rosel1, G., Why Engineers
Transfer, Business Horizons , 1970 , 13 .
10. Globerson, S., Developing A Multiple Fac(or ‫חן‬-
centive Plan, Industrial Engineering , !982 , 1'4 .
11. Goff, N.S., Developme ‫ ח‬t Project Costs, Journal
oj Systems Management, 1975, VI .
12. Hitt, M., & Middlemist, R.D .‫ י‬AMethodology
to Develop Criteria and Criteria Weightings for
Assessing Subunit Effectiveness in Organiza -
tions, Academy 01 Management ]ournal , 1979 ,
22 .
13. Hurst, G.E., Choosing PerformaI,ce Measures ,
Department of Decision Sciences. The Wharton
Schoo1, University of Pennsylva ‫ ח‬ia , 77-11-01 ,
1977 .
14. Kerzner, H., EvaJuationTechniques in Project
Management, Journal 01 Systems Management ,
1980,31 ', 10-19 .
Iy Want From Your Job, PSy(.·ho!()gy Today ,
1978 .
2]. Roberts, E.B., & Fu,sfeld, A.R., Staffing In -
novative Technology-Based Organization, Sfoan
Managelllent Revielv , 1981 , 22 .
22. Shapira, R., & Globerson, S., Incel ‫ו‬tive Scheme
for a Research and Deveiopment Organizatio ‫ח‬,
Research Management, in press .
23. Woodword, S. W., Performa ‫ ח‬ce in Plan ‫ ח‬ing A
Large Project, Journa! 01 Management Studies ,
1982 , 19 .
Dr. Shlomo Globerson is a facu1ty member of the
Graduate School of Business Administration, Tel
Aviv University. At prese ‫ ח‬t, he is a visiting professor
at Northeastern University. His current research and
co ‫ ח‬sultation work is in developing performance
criteria systems and bo ‫ ח‬us schemes for project
oriented organizatiol1s .

Thank You
1 would like ‫ סן‬Ihank the following individuals for Iheir assista ‫ ח‬ce and response (‫ ס‬my re -
quests (June and September PMQs) for back issues of the Project Mangell1e‫ז‬/ t Quarferly :
Des CO ‫ס‬k
R.H. Gerstenberger
Char)ey Lopinsk )'
Thr ‫ ס‬ugh their efforts and others identified previ ‫ ס‬usly, a c ‫ ס‬mplete set ‫ ס‬f ‫ ס‬riginal PMQs has

L
bee ‫ ח‬devel ‫ ס‬ped .

Terry L. Kinnear
.Edit ‫ס‬r
._---------'
PROJECT MANAGEIV1ENT QUARTERLY page 41

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