INDIVIDUAL AND GROUP

INCENTIVES
REWARD SYSTEMS – AN
OVERVIEW
FINANCIAL NON-FINANCIAL
Direct payments Protection Programmes
(salaries)
Employee involvement in
decision making
Indirect payments
(benefits / Recognition
incentives) Training Opportunities
Nurturing and supportive
company culture
Performance Appraisal and Compensation 30th April 2004
 REWARD SYSTEMS – CONTD.
HARD VARIABLES SOFT VARIABLES
 Salary  Opportunity for
 Augmented Pay advancement
(overtime, etc)  Opportunity for
 Indirect Pay (fringe growth
benefits)  Psychic Income
 Works Pay (uniform (doing personally
allowance, etc.) meaningful work)
 Perks Pay (discounts  Quality of Life
on company (workplace
products, etc. flexibility, etc.)
Performance Appraisal and Compensation 30th April 2004
EFFECTIVE REWARD SYSTEMS
ARE…

MEASURABLE ATTAINABLE
Effective
Reward
Systems

SPECIFIC SIMPLE

Performance Appraisal and Compensation 30th April 2004

INCENTIVE SYSTEMS
 Individual Incentives: give income over
and above base salary to individual who
meets specific individual performance
standards

 Group Incentives: all team members

rewarded when team collectively meets
specific performance standard

 Organization-wide Incentives: applicable

to all employees in an organization
Performance Appraisal and Compensation 30th April 2004
INDIVIDUAL INCENTIVES –
EGS.
 Variable Pay
 Piecework Incentives
 Differential Piece-rate Systems
 Production Bonus (Eg. Levi
Strauss)
 Commission
 Awards
 Bonus
 Other Perks
Performance Appraisal and Compensation 30th April 2004
VARIABLE PAY – BASIC
BELIEFS
 Some jobs contribute more to
the organization than others

 Some people perform better

than others

 Employees who perform better

should receive more
compensation
Performance Appraisal and Compensation 30th April 2004
VARIABLE PAY IS…
 Not a part of salary
 Not guaranteed
 Based on individual, group,
or organizational
performance

Performance Appraisal and Compensation 30th April 2004

ADVANTAGES OF VARIABLE
PAY
 Offers flexibility to target specific
outcomes
 Can be used to drive
performance
 Helps increase the involvement
of employees in business
success

Performance Appraisal and Compensation 30th April 2004

SUCCESSFUL VARIABLE PAY
PLANS

Performance Appraisal and Compensation 30th April 2004

 FORMS OF VARIABLE PAY

Performance Appraisal and Compensation 30th April 2004

 PIECE-WORK INCENTIVES
 Employee is paid for each unit of
output
 Works for only certain kinds of jobs
 Declining in popularity because does
not always result in higher productivity
DIFFERENTIAL PIECE-RATE
SYSTEMS
 Employees paid one piece-rate for units
produced upto a standard output and higher
piece-rate wage for units produced over the
standard
Performance Appraisal and Compensation 30 April 2004
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PRODUCTION BONUS
 Incentives that reward extra effort in
the work place
 When an employee either saves time
on a given production run, or
produces more units in a given time
period, he is given a monetary
reward per extra unit
 Very similar to piecework, except that
the employee still earns a base salary
Performance Appraisal and Compensation 30th April 2004
 COMMISSION

 A percentage of the selling price given

to the seller / sales person

 Minimal base salary + commission as a

way to make the employee a more
aggressive seller

 Usually employed only in sales-related

jobs

Performance Appraisal and Compensation 30th April 2004

AWARDS
 Cash or merchandise used as
incentives

ENHANCED COMPENSATION
AWARD
 Agencies that meet certain performance
criteria grant awards to employees who
directly contribute to these performance
standards

Performance Appraisal and Compensation 30th April 2004

BONUS
 One time payment that does not
become part of the employees base
pay

RETENTION BONUS
 Bonus paid in order to retain
employees

Performance Appraisal and Compensation 30th April 2004

 TEAM INCENTIVES

Performance Appraisal and Compensation 30th April 2004

WHAT ARE TEAM
INCENTIVES?
 Payments or other non-financial
rewards given to members of a
formally established team which are
linked with the performance of that
team
 Rewards are shared among members
of the teams according to a pre-
determined formula, or on an ad hoc
basis
Performance Appraisal and Compensation 30th April 2004
WHY THE NEED
FOR
TEAM INCENTIVES?
 Enhance productivity

 Tie earnings to team productivity

 Improve Quality

 Aid recruiting and retention of employees

 Improve employee morale

Performance Appraisal and Compensation 30th April 2004

 Encourage co-operation, not
competition among employees
 Enhance flexibility and encourage multiple
skills and talents
 Encourage less effective performers to
improve in order to meet team standards
 To develop self-managed and self-directed
teams
Performance Appraisal and Compensation 30th April 2004
CONDITIONS FOR SUCCESSFUL
TEAM INCENTIVES

Performance Appraisal and Compensation 30th April 2004

TEAM INCENTIVES – EGS.
 A certain amount of finance shared
by team members
 Outings such as picnics, movies,
dinners
 Better access to equipment and
facilities in workplace or provision
with private/ own facilities at
specific place of work
Performance Appraisal and Compensation 30th April 2004
 ORGANIZATION-WIDE
INCENTIVES

Performance Appraisal and Compensation 30th April 2004

GAIN SHARING
 A formal reward system that
comprises 3 main elements:
 A philosophy of co-operation
 An involvement system
 A Financial Bonus

Performance Appraisal and Compensation 30th April 2004

PHILOSOPHY OF CO-
OPERATION
 High levels of trust
 Two-way communication
 Participation
 Harmonious Industrial Relations

Performance Appraisal and Compensation 30th April 2004

INVOLVEMENT SYSTEM

 Refers to structure and process for

improving organizational
productivity
 Either team-work/employee based
suggestion system

Performance Appraisal and Compensation 30th April 2004

FINANCIAL BONUS

 Determined by calculation that

measures the difference between
expected costs and actual costs
during the bonus period.

Performance Appraisal and Compensation 30th April 2004

PROFIT SHARING
 Employees receive a bonus that is
normally based on some
percentage (e.g. 10% to 30%) of
the company’s profits beyond
some minimum level
 Company pays only if it makes a
profit – hence compensation is
more variable and dependent on
extrinsic conditions
 Thus, these benefits are not fixed
Performance Appraisal and Compensation
30 April 2004
th
 3 COMPONENTS MUTUALLY
REINFORCE ONE ANOTHER
Co-operation

Financial Information
Bonus Sharing

Productivity Involvement
New-behaviour

Suggestion
Performance Appraisal and Compensation 30th April 2004
DIFFERENCES BETWEEN…

GAIN SHARING PROFIT SHARING

Based on a measure of Based on a global profiting
productivity measure
Current distribution plans Deferred payment plans
/ frequent distribution Annual measures and
rewards after determining
True incentive plans profit
Employee benefit plans
Directly related to Related to overall company
individual behaviour and performance and therefore
can therefore more may be a little more
effectively motivate difficult to relate to
worker productivity individual behaviour
Performance Appraisal and Compensation 30th April 2004
NON-FINANCIAL INCENTIVES

CAN BE IN THE FORM OF:

 Achievement
 Recognition
 Responsibility
 Influence
 Personal Growth

Performance Appraisal and Compensation 30th April 2004

NON-FINANCIAL INCENTIVES –
EGS.
 Positive feedback
 Praise from a higher authority
 Recognition in company’s magazine/
newsletter/notice boards/special events
 Special events – holidays/dinners/movies
 Travel abroad to other branches of the
company
 Opportunities to represent the company at
regional/national/international conferences
Performance Appraisal and Compensation 30th April 2004
AVENTIS PHARMACEUTICALS

Sales
40%
Domestic sales 25%
Exports 15%

Profit before tax (PBT)

25%
Outstanding 10%
Inventories 10%
Number of employees
Performance Appraisal and Compensation 30th April 2004
AVENTIS
PHARMACEUTICALS…
Individual Objective Incentive Slabs

 120% achievement 20% of basic

 110% achievement 15% of basic
 100% achievement 10% of basic
 90% achievement 5% of basic
 Below 90% No bonus

Performance Appraisal and Compensation 30th April 2004

AVENTIS
PHARMACEUTICALS…
 Company achievements for a particular year are
107%
 Individual performance is 100%
 Employees salary is Rs.15000 p.m.

 Annual target 60,00,000

 If an employee achieves 100% target =
Rs.30,000

 If an employee achieves 104% of his target

104 * 30000 / 100 = Rs.31,200
Performance Appraisal and Compensation 30 April 2004
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LUPEN PHARMACEUTICALS…
Company SBU Individua
GRADE
Performa Performa l
nce nce Performa
Corporat 25% 25% 50%
nce
e staff
Manager --- 50% 50%
s
GMs 25% 25% 50%

Presiden 40% 60% ---

ts

Performance Appraisal and Compensation 30th April 2004

Performance Appraisal and Compensation 30th April 2004
Performance Appraisal and Compensation 30th April 2004