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C12: Variable Pay - Improving Performance with Variable Pay (part 2) Exam/Q’s and A’s
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C12: Variable Pay - Improving Performance with Variable Pay (part 2) Exam/Q’s and A’s
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C12: Variable Pay - ImprovingPerformance with Variable Pay (part 2)
Exam/Q’s and A’s
Two Primary Elements of Compensation - -Fixed pay rewards are based on
an employee's value
- Market based = rewards ind for their value relative to the labor market
- Performance based = rewards ind for their sustained performance over
time
- Skill based = rewards ind for their acquisition of new skills and
competencies
Variable pay rewards for accomplishments and results
- Organizational, group or individual results
- Performance-based compensation
- Flexible and adaptable
- The Goal of Variable Pay - -The ultimate goal of variable pay is to improve
organizational performance.
Once an organization has identified its key business objectives, the proper
design and implementation of variable pay programs will help motivate
employees to behave in ways that accomplish those objectives.
Variable pay influences organizational performance by providing:
- Focus
- Alignment
- Motivation
- Reinforcement
- Business Strategies - -Operational Excellence
primarily a price-cost-based strategy. This strategy often includes a
combination of price, quality, dependability and ease of purchase that
competitors cannot match. The corp culture typically strives to minimize
waste and reward efficiency. (Fast food rest)
Product/Service Leadership
primarily an innovation-based strategy. This strategy focuses on innovation,
product development and market exploitation. The corp culture encourages
imagination and a mind-set driven by the prospect of creating the future.
(High tech companies)
Customer Intimacy
,primarily a solutions-based strategy. This strategy focuses on creating
results for carefully selected customers (making them successful.) The corp
culture encourages deep and lasting relationships with customers. (High end
hotel chains)
- Business Strategies' Business Objectives - -Operational Excellence
- Product quality
- Operational efficiency improvement
- Process improvement
- Cost reduction
Product/Service Leadership
- Market share/market penetration
- Product development
- Cost reduction
Customer Intimacy
- Customer opinion of products
- Product quality
- Customer retention
- Customer satisfaction
- Business Life Cycles' Business Objectives - -Start-up
- Obtaining capital
- Cash conservation
- Develop brand awareness
- Develop marketing plan
Growth
- Production capability
- Market share/market penetration
- Sales volume/revenue growth
Mature
- Improve operational efficiency
- Stock price appreciation
- Maintain/increase market share
Decline
- Maximize profits
- Extend product demand
- New product development
- Three Categories of Variable Pay - -Incentives, Bonuses and Recognition
- Incentives - -- Criteria determined in advance
, - Amount of payment can vary
- Monetary or nonmonetary
- Self-funded or budgeted
- Nondiscretionary
- Bonuses - -- Completion of specific task
- Amount determined in advance
- Monetary
- Budgeted
- Nondiscretionary
- Recognition - -- Criteria broadly defined and subjective
- Awarded spontaneously
- Decision made after the fact
- Focused on behaviors
- Monetary or nonmonetary
- Budgeted
- Discretionary
- Short-Term Incentive Plans - -Profit-sharing
Performance-sharing
Individual performance based
- Short-Term Incentive Plans
Profit-Sharing - -Plans:
- Share profits with employees
- Base rewards on financial performance
- Typically include entire organization
- Payout in equal or graduated amounts
Plan Objectives:
- Foster employee identification with org's success
- Create a common focus
- Short-Term Incentive Plans
Profit-Sharing - -Plan Approaches
- First-return plans (sharing all profits)
start paying on the first profits earned.
- Threshold plans
payout to eligible emps for perf in excess of fair return on investments which
is reserved for stockholders. Ex: 10% of gross profit over 5million
- Operating budget plans
in non-for-profit orgs, there is no profit metric, but an operating budget can
be substituted for that metric.
- Peer company comparisons
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