Incentives & Gain sharing

Incentives and Gain sharing are compensation approaches that reward

specified outcomes.

Incentives Systems

Incentives Systems are link compensation and performance by paying employees for actual results, not for seniority or hours worked.

* They are often reward on individual performance. Although Incentives may be giving to a group.

Gain sharing systems

Gain sharing matches an improvement ( gain ) in performance With a distribution ( Sharing ) of the benefits with employees.

* They are always reward on group of employees rather then an individuals.

Classification of Incentive Systems

1- Piecework2- Production Bonuses3- Commission4- Merit Raises5- Pay – for – Knowledge / Pay –for – Skills Compensation

Piecework Incentives

Piece work an incentive system hat compensate the workers for each unit of output.Daily or weekly pay is determine by multiplying the output in units times the rate per unit, for e.g., in agriculture labour, workers are often

paid a specific amount per bushel of produced packed.

Production Bonuses Incentives

Production bonuses are incentives paid to workers for exceeding output goals often

employees received a base pay rate, than, through extra efforts that results is output

above the standard, they get supplemental bonus, which is usually figured at a given rate for each unit of production over the standard.

Commission Incentives

In sales job the seller may be paid a percentage of selling price or a flat amount

for each unit sold when no base compensation is paid, total earning come

from commission.Real estate agents and automobile seller are often on this form of “straight commission”.

.

Merit Raises Incentives

Merit rises are pay increases given after an evaluation of performance. These

raises are usually decided by the employee’s immediate supervisor, often in

conjunction with superiors.

Pay – for – Knowledge / Pay –for – Skills Compensation

Pay for knowledge / pay for skills compensation systems reward employees with higher pay as a n

incentive for the increase of knowledge or skills they acquire.

Weather the compensation system is called knowledge base pay, skill base pay, or pay for knowledge, pay level are based not on what an employee does but on the range of the jobs the employee can do. Employees are rewarded for

each new jobs or skills. These learning base pay systems evaluate the employee’s worth to the

employer.

Non-monetary Incentives

Incentive usually means money, but performance incentives also come in other

forms. For e.g. many companies have reorganizations programs in which employees

receive plaques, novelty items from key chains to base ball caps. Certificates, time off, vacations and the other non-cash incentives for job performance suggestions and even

community services.

Executives Incentives

1- Short-versus long- term Compensations2- Stock Options3- Weighted Incentives Systems

Short-versus long- term Compensations

Short term vs. long term compensations At the same time incentives must be matched to the needs of executives. Young and middle

age executives are likely to desire cash bonuses to meet the needs of a growing or maturing families. Older executives often

seek to defer incentive compensation to build retirement savings.

Stock Options

Some times executives are granted stock options- the right to purchase the

company’s stock at a predetermined price. This price may be set at, below, or above

the market value. According to the compensation experts a top

manager’s salary should be base on 1- Company size2- Return to shareholders of the company3- Profitability 4- The Complexity and importance of the job

Weighted Incentives Systems

given the volatility of the stock market, incentives might be more effective if tied to

improvements in key organization wide measures that executives control. For e.g.

weighted incentive systems reward executives on the basis of improvements in

multiple areas of business performance.

International Incentives

To attract, retain, and motivate international executives and key employees, many global companies are setting a foreign allowances that are incentives for international employees. Some companies find it advantageous to pay foreign housing and transportation cost and taxes directly rather than give allowances and incentives to work overseas.

Gain Sharing Approaches

Gain sharing matches and improvement in company performance with some distribution of the benefits for employees. This approach has experienced exclusive growth, with nearly three of every four plans installed during the 1980s using it.

Categories of Gain Sharing

1- Employee Ownership

2- Production-Sharing Plans

3- Profit-Sharing Plans

4- Cost Reduction Plans

Employee Ownership

Perhaps the ultimate gain sharing approach is for employees to own the company. Many companies have stock purchase plans that

allow workers to buy shares in the company, thus “owning” a fractional part of the firm and

sharing in its success.

Production-Sharing Plans

Production-Sharing Plans allow groups of workers to receive bonuses for exceeding predetermine levels of output. The plans

tends to be short-range and related to very specific production goals.

For e.g., a team may get a bonus for a specific goals.

Profit-Sharing Plans

Profit-Sharing Plans share profits with the employees, When plans work well, they create

trust and a feeling of a common fate among workers and management.

Usually profit plans reserve a percentage of the firm’s overall profits.

Cost Reduction Plans

Plans primarily aim to reduce costs and create improved commitment from workers through various approaches, For e.g., Scanlon plan focuses primarily on labor costs and quality.

Reference

Human Resources and Personnel Management

William B. Werther, Fifth edition,

Page # 407 - 429.