2 productivity standards usually a historical

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(2) Productivity standards : Usually a historical standard is used. This involves a choice of a prior year’s performance to be used for comparison with current performance. The question, however, is which baseline should be used. If too good a year, the target is too difficult; if too bad a year, the target is too easy. A compromise is to use a moving average of several years (eg the average for the past five years, with the five-year block changing by one year on an annual basis). A problem with historical standards is that the changing environmental conditions can cause a standard to be ineffective. It is therefore necessary that environmental influences on performance, which are not controllable by plan participants, be factored out when identifying incentive levels. (3) Sharing the gains split between management and workers: The plan should address the relative cuts between management and workers of any profit or savings generated. This also includes discussion on whether an emergency reserve (gains withheld from distribution in case of future emergencies) will be established in advance of any sharing of profits. (4) Scope of the formula : Given organisations are complex and require more complex measures, performance measures have expanded beyond traditional financial measures. Formulas can vary in the scope of inclusions for both the labour inputs in the numerator and the productivity outcomes in the denominator. (5) Perceived fairness of the formula: To ensure that employees perceive the plan as fair, organisations should let employees vote on whether implementation should go forward. This, together with union participation in program design, will ensure plan success.
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59 MNH306K/101 (6) Ease of administration: Plans that are sophisticated and that involve calculations of profits or costs can become too complex for the company’s information system. Increased complexities also require more effective communications and higher levels of trust among participants. (7) Production variability: One of the major sources of problems in group incentive plans is failure to set targets properly. Standards should be set relative to industry standards. This is to allow for uncontrollable cost change. TOTAL [50]
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