Test2-compensationch4.odt - CH 4 Incentive Pay Incentive...

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 nonrecurring basis
● 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/ permanent increase 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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