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Human ResourceHuman ResourceManagementManagement
TENTH EDITONTENTH EDITON
© 2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentation
by Charlie Cook
PowerPoint Presentation
by Charlie Cook
Variable Pay andVariable Pay andExecutive CompensationExecutive Compensation
Variable Pay andVariable Pay andExecutive CompensationExecutive Compensation
Chapter 13Chapter 13
SECTION 4Compensating
Human Resources
SECTION 4Compensating
Human Resources
Robert L. Mathis Robert L. Mathis John H. Jackson John H. Jackson
© 2002 Southwestern College Publishing. All rights reserved. 13–2
Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives
After you have read this chapter, you should be able to:
– Define variable pay and give examples of three types of variable pay.
– Identify four guidelines for successful incentive programs.
– Discuss three types of individual incentives.
– Explain three different way that sales employees typically are compensated.
– Identify key factors that must be addressed when using team variable pay plans.
© 2002 Southwestern College Publishing. All rights reserved. 13–3
Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)
– Discuss why gainsharing, profitsharing, and employee stock options have grown as organizational incentive plans.
– Identify the components of executive compensation and discuss criticisms of executive compensation levels.
© 2002 Southwestern College Publishing. All rights reserved. 13–4
Variable Pay: Incentives for PerformanceVariable Pay: Incentives for PerformanceVariable Pay: Incentives for PerformanceVariable Pay: Incentives for Performance
Variable Pay Systems Service Pay Systems
Some jobs contribute more to the organization than others.
Time spent is the primary measure of employee contribution
Some people perform better than others.
Length of service is the primary differentiating factor among people.
Employees who perform better should receive more compensation.
Contributions are recognized through different amounts of base pay.
A portion of some employees’ total compensation should be contingent on performance.
Apportioning rewards based on individual performance is considered to be divisive.
© 2002 Southwestern College Publishing. All rights reserved. 13–5
Types of Variable Pay PlansTypes of Variable Pay PlansTypes of Variable Pay PlansTypes of Variable Pay Plans
Figure 13–1
© 2002 Southwestern College Publishing. All rights reserved. 13–6
Factors Affecting Variable Pay PlansFactors Affecting Variable Pay PlansFactors Affecting Variable Pay PlansFactors Affecting Variable Pay Plans
Does the plan fitDoes the plan fitthe organization?the organization?
Does the plan fitDoes the plan fitthe organization?the organization?
Are the right behaviorsAre the right behaviorsencouraged by the plan?encouraged by the plan?
Are the right behaviorsAre the right behaviorsencouraged by the plan?encouraged by the plan?
Is the plan beingIs the plan beingadministered properly?administered properly?
Is the plan beingIs the plan beingadministered properly?administered properly?
Variable Pay Variable Pay Plan SuccessPlan Success
Variable Pay Variable Pay Plan SuccessPlan Success
© 2002 Southwestern College Publishing. All rights reserved. 13–7
Factors for Factors for Successful Successful
Variable Pay Variable Pay PlansPlans
Factors for Factors for Successful Successful
Variable Pay Variable Pay PlansPlans
Figure 13–2
© 2002 Southwestern College Publishing. All rights reserved. 13–8
Individual IncentivesIndividual IncentivesIndividual IncentivesIndividual Incentives
IndividualismStressed in
OrganizationalCulture
IndividualismStressed in
OrganizationalCulture
Identification ofIndividual
Performance
Identification ofIndividual
Performance
IndependentWork
IndependentWork
IndividualCompetitiveness
Desired
IndividualCompetitiveness
Desired
Individual Individual Incentive Pay Incentive Pay
PlansPlans
Individual Individual Incentive Pay Incentive Pay
PlansPlans
© 2002 Southwestern College Publishing. All rights reserved. 13–9
Piece-Rate SystemsPiece-Rate SystemsPiece-Rate SystemsPiece-Rate Systems
Straight Piece-Rate Systems– Wages are determined by multiplying the
number of pieces produced by the piece rate for one unit.
Differential Piece-Rate Systems– Employees are paid one piece-rate for units
produced up to a standard output and a higher piece-rate wage for units produced over the standard.
© 2002 Southwestern College Publishing. All rights reserved. 13–10
Bonuses and Special Incentive ProgramsBonuses and Special Incentive ProgramsBonuses and Special Incentive ProgramsBonuses and Special Incentive Programs
Bonus– A one-time payment that does not become part
of the employee’s base pay. Awards
– Cash or merchandise used as an incentive reward.
Recognition Awards– Recognition of individuals for their performance
or service to customers in areas targeted by the firm.
Service Awards– Rewards to employees for lengthy service with
an organization.
© 2002 Southwestern College Publishing. All rights reserved. 13–11
Sources of BonusesSources of BonusesSources of BonusesSources of Bonuses
Figure 13–3Source: Kathryn F. Clark, “Incentives Increase But Competitive Base Salary Key in Talent Race,” Human Resource Executive, June 2, 2000, 30. Used with permission.
© 2002 Southwestern College Publishing. All rights reserved. 13–12
Different Bases for Sales Incentives, In Order of UseDifferent Bases for Sales Incentives, In Order of UseDifferent Bases for Sales Incentives, In Order of UseDifferent Bases for Sales Incentives, In Order of Use
Figure 13–4
© 2002 Southwestern College Publishing. All rights reserved. 13–13
Sales Compensation PlansSales Compensation PlansSales Compensation PlansSales Compensation Plans
Salary Only– All compensation is paid as a base wage with
no incentives. Commission
– Straight Commission• Compensation is computed as a percentage of sales in
units or dollars.• Draw system make advance payments against future
commissions to salesperson.
– Salary Plus Commission or Bonus• Compensation is part salary for income stability and
part commission for incentive.
© 2002 Southwestern College Publishing. All rights reserved. 13–14
Why Organizations Establish Team Pay PlansWhy Organizations Establish Team Pay PlansWhy Organizations Establish Team Pay PlansWhy Organizations Establish Team Pay Plans
Figure 13–5
© 2002 Southwestern College Publishing. All rights reserved. 13–15
Group/Team-Based Variable PayGroup/Team-Based Variable PayGroup/Team-Based Variable PayGroup/Team-Based Variable Pay
DeterminingDeterminingIndividual Individual RewardsRewards
DeterminingDeterminingIndividual Individual RewardsRewards
Timing ofTiming ofTeam Incentives Team Incentives
Timing ofTiming ofTeam Incentives Team Incentives
Deciding the Deciding the Allocation of Allocation of
RewardsRewards
Deciding the Deciding the Allocation of Allocation of
RewardsRewards
DistributingDistributingTeamTeam
IncentivesIncentives
DistributingDistributingTeamTeam
IncentivesIncentives
© 2002 Southwestern College Publishing. All rights reserved. 13–16
Conditions for Successful Team IncentivesConditions for Successful Team IncentivesConditions for Successful Team IncentivesConditions for Successful Team Incentives
Figure 13–6
© 2002 Southwestern College Publishing. All rights reserved. 13–17
GainsharingGainsharingGainsharingGainsharing
Gainsharing– The sharing with employees of greater-than-
expected gains in productivity.– Alternatives for rewards distribution:
• A flat amount for all employees• Same percentage of base salary for all employees• Percentage of the gains by category of employees• A percentage based on individual performance against
measures
© 2002 Southwestern College Publishing. All rights reserved. 13–18
Profit SharingProfit SharingProfit SharingProfit Sharing
Profit Sharing– A system to distribute a portion of the profits
of the organization to employees.– Primary objectives:
• Improve productivity
• Recruit or retain employees
• Improve product/service quality
• Improve employee morale
– Drawbacks• Disclosure of financial information• Variability of profits from year to year• Profit results not strongly tied to employee efforts
© 2002 Southwestern College Publishing. All rights reserved. 13–19
Profit-Sharing Plan Framework ChoicesProfit-Sharing Plan Framework ChoicesProfit-Sharing Plan Framework ChoicesProfit-Sharing Plan Framework Choices
Figure 13–7
© 2002 Southwestern College Publishing. All rights reserved. 13–20
Employee Stock Ownership Plans (ESOPs)Employee Stock Ownership Plans (ESOPs)Employee Stock Ownership Plans (ESOPs)Employee Stock Ownership Plans (ESOPs)
Employee Stock Ownership Plans– A plan whereby employees gain stock
ownership in the organization for which they work.
ESOP Advantages– Favorable tax treatment for ESOP earnings– Employees motivated by ownership in the firm
ESOP Disadvantages– Retirement benefit is tied to the firm’s
performance– Management tool to fend off hostile takeover
attempts.
© 2002 Southwestern College Publishing. All rights reserved. 13–21
U.S. CEO RemunerationU.S. CEO RemunerationU.S. CEO RemunerationU.S. CEO Remuneration
Figure 13–8Source: The Economist, May 8, 2000, 16.
© 2002 Southwestern College Publishing. All rights reserved. 13–22
Executive Compensation Components Executive Compensation Components Executive Compensation Components Executive Compensation Components
Figure 13–9
© 2002 Southwestern College Publishing. All rights reserved. 13–23
Common Executive PerksCommon Executive PerksCommon Executive PerksCommon Executive Perks
Figure 13–10
© 2002 Southwestern College Publishing. All rights reserved. 13–24
Arguments Arguments in the in the
Executive Executive Pay DebatePay Debate
Arguments Arguments in the in the
Executive Executive Pay DebatePay Debate
Figure 13–11
