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Human Resource Management

Presented to: Sir Ahmad Tasman Pasha Presented by: khurram Shahzad BSIT07-32

Department of Computer Science Bahuddin Zakariya University Multan, Pakistan


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Chapter name : Pay For Performance And


Financial Incentives

Topics
Organization Wide Variable Pay Plans

Incentives For Blue-collar Jobs


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Organization Wide Variable Pay Plans

Contents
What is Incentive? What is Incentive plan? Organization wide incentive plans ESOP Scanlon Plans At risk Variable Pay Plans
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What is incentive? Rewards paid to workers whose production exceeds some predetermined standard.
Rewards can be in the form of bonus, vehicles, house facility and by many other ways.
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What is incentive Plan? A plan in which production standard is set for the workers who exceeds the production standard .

Example
NFC Marketing Sales Officer is
rewarded on the basis of fertilizer sales in his region.
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What is Organization wide incentive Plan? Incentive Plans in which all employees can participate .
Here Production Standard is set for all employees of an organization.

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Types Of Organization wide incentive Plan Profit Sharing Plans ESOP Scanlon plans At Risk Variable Pay Plans

80% of the companies using profit sharing use the deferred option.
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Organization wide incentive Plans

ESOP

Profit Sharing

Scanlon Plans

At Risk Variable Pay Plans

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Profit Sharing Plans


Plans in which employees receive a share of the firms annual profit. Profit sharing is not dominant in many industrialized countries.
Participant Eligibility
Any employee age 21 and older who has completed two years of service must be included in the plan. (This can be vary from organization to organization)
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Profit Sharing Plans

Combinations
Cash or current distribution plans
Deferred plans Both
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Profit Sharing Plans

Cash plans
Employees receive cash shares of the firm's profits at regular intervals.

Deferred profit-sharing plans


A predetermined portion of company profits is placed in each employees account under a well organized department.
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How does Profit sharing work?


The company contributes a portion of its profits to a pool that will be distributed among eligible employees. The amount distributed to each employee may be weighted by the employee's base salary. so that employees with higher base salaries receive a slightly higher amount of the shared pool of profits. Generally this is done on an annual basis.
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Advantages of Profit Sharing Plans


Boost productivity and Morale.
Brings groups of employees to work together toward a common goal Helps employees focus on profitability.

Enhances commitment to organizational goals.


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Example
Lincoln Electric Company
HERE Profits(15%-20%) are distributed to employees based on their individual merit rating.

Home Depot Organization


It distributed $90 million in 2003 using
Profit Sharing Plan
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Employee Stock Ownership PLAN (ESOP)


ESOP is a retirement plan in which the company contributes its stock to the trust. The trust distributes the stock to employees on retirement or separation from service. A corporation annually contributes its own stock or cash (with a limit of 15% of compensation) to be used to purchase the stock to a trust established for the employees.
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Employee Stock Ownership PLAN (ESOP)


The trust holds the stock in individual employee accounts and distributes it to employees upon separation from the firm if the employee has worked long enough to earn ownership of the stock.

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Advantages Of ESOP
ESOP help employees develop a sense of ownership and commitment to the firm, and help to build teamwork.
No taxes on ESOP are due until employees receive a distribution from the trust, usually at retirement.
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Example Of ESOP
Thermacore Company
Thermacore is a private company and it Uses the ESOP system to give seniority to their employees. Seniority Formula
15% of company income employee bonus pool %age rate

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Scanlon Plan
An incentive plan developed in 1937 by Joseph Scanlon and Designed to encourage cooperation, involvement and sharing of benefits .

Important Features
Co-operation of employees Mission and Policies Competency Sharing of benefits formula

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At Risk Variable Pay Plans


Plans that put some portion of the employees weekly, monthly and yearly pay at risk, subject to the firms meeting its financial goals .

Important Rules
If employees meet or exceed their goals, they earn back not only the portion of their pay that was at risk but also some incentives.

If they fail to meet their goals, they forego some of the pay they would normally have earned.
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Incentive Plans For Blue Collar Jobs

Contents
Piecework Plan Straight Piecework Plan

Standard Hours Plan


Merit pay plan
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Piecework Plans
A system of pay based on the number of

items processed by each individual worker in a unit of time, such as items per hour or items per day.

Example
Programmer Job
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Straight Piecework Plan


An incentive plan in which a person is paid a sum for each Item he or she makes or sells, with a strict proportionality Between results and rewards.

Example
If Programmer develops an outstanding software for an organization that is above the expectations of organization then he will be rewarded.
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Standard Hour Plan


A plan by which a worker is paid a basic hourly rate but is paid an extra %age of his or her rate for production exceeding the standard per hour or per day similar to piecework payment but based on a percent premium.

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Merit Pay Plan


Any Salary increase awarded to an employee based on his or her individual performance.

Example
Promotion system in private sector in Pakistan.
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