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CH 4) Incentive Pay Incentive Pay ●Compensation fluctuates according to:○A pre established formula ○individual/group goals○Company earnings●Adds to base pay on a nonrecurringbasis ●Controls costs●Motivates employees through explicit goal setting Incentive Pay assumptions●Individual employees & work teams differ in how much they contribute to the company (in what they do and how they do it)●The company’s overall performance depends to a large degree on the performance of individuals & groups w/in company ●To attract, maintain, & motivate high performers & to to fair to all employees (a company needs to reward employees on the basis of their relative performance Contrasting Incentive Pay with Traditional Pay●Traditional pay usually includes: annual salary/hourly wage○Increased periodically on a seniority or merit basis w/ permanentincrease to base pay●Incentive Pay○Increases base pay on goal attainment w/ pay increase nonrecurring○Companies use incentive pay to reward individual employees, teams of employees, or whole companies based on their performance Incentive Pay Plan Categories
●Individual: reward employees whose work is performed independently ○Quantity of work output○Quality of work output○Monthly sales○Work safety record ○Work attendance●Group: promote supportive, collaborative behavior among employees○
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Management, Employment compensation, Profit sharing, Employee stock option, Traditional Pay