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Short-Term Incentives

Those

additions to base
pay provided to
employees within the
current year.

Short-Term Incentives

In reviewing opportunities for granting


short-term incentives, employees must
be viewed from four different
perspectives:
Individual contributors
Team members
Work units
Organization members

Premiums & Differentials


Defined and Proscribed By:
Wage
Pay

and Hour Laws

Policy and Procedures

Union

Contracts

Industry

Practices
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Premiums & Differentials

Overtime Pay

Standby

Shift
Differential

Cleanup Time

Burdensome

Distasteful

Hazardous
Work

Weekend
Holiday Work

Call-back

Reporting

Pay-For-Units-Produced

The oldest of all incentive programs.

It was sophisticated in the scientific


management theories of Frederick
Taylor in the late 19th century.

The basic three Ss of workplace


efficiency programs are:
Standardize - Simplify - Specialize
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Pay-For-Units-Produced

The three building blocks that


provide the foundation for many
pay-for-units-produced incentive
plans are:
Establishing the time required..
Determining what should be
considered an acceptable level of
performance...
Establishing an acceptable level of
pay.
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Team Incentive Plans


Most

of the various kinds


of individual incentive
plans described in our text
can be used in rewarding
the efforts and
contributions of teams.
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Aggregating Employees For


Incentive Opportunities

It is not unusual for executives to receive


short-term bonuses equal to 50% of base
pay and for other senior managers to
receive bonuses equaling 25% to 50% of
base pay.

While short-term incentive programs have


descended through the management
structure, the major recipients continue to
be the senior managers.
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Aggregating Employees For


Incentive Opportunities
The size of the bonus
pool from which
management shortterm incentives are
taken is normally
determined by some
form of profit
measurement.

Aggregating Employees For


Incentive Opportunities
The measures
used will vary
by organization
and they are
normally
formula driven
plans with one
or more of the
following
characteristics:

Profit Before
Taxes

Profit After Taxes

Return On Equity

Return On
Invested Capital
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Aggregating Employees For


Incentive Opportunities
The

amount of the
bonus is normally
established as a
percentage of base
pay.
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Organization-Wide
Short-Term Incentives

Productivity Gain Sharing Plans


This is basically a sharing by the
organization with employees of
"bottom-line" improvements obtained
through increased productivity.
A first requirement for a gain sharing
plan is determination of a standard
measure of performance.
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Scanlon Plan

Scanlon's philosophy was that if


the company would foster and use
employee ideas and suggestions
and, in turn, reward employees for
their constructive efforts, the
company would improve
profitability and workers would
gain through steady employment
and increased pay.
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Scanlon Plan

The Basic Elements of the


Scanlon Plan are:
The Ratio
Total labor cost / sales value
of production .
The Bonus
Depends on the reduction in
costs
below the preset ratio.
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Scanlon Plan
The

Production Committee
Formed in each major
department and is used to
tap into the imagination and
ingenuity of the workers.

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Scanlon Plan
The

Screening Committee

Consists of top members of the


plant management and workers
representatives, usually eight to
twelve members.
It reviews the monthly bonus,
discusses current production
problems, and considers all
suggestions for organizational
improvement.
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Profit Sharing

Any procedure under which an


employer pays or makes
available to regular employees,
(subject to reasonable eligibility
rules) in addition to prevailing
rates of pay, special current or
deferred sums based on the
profits of business.
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Profit Sharing
There

are essentially three


different types of profit
sharing plans in existence
today
Cash or current payment plan
Deferred plan (pension support)
Combined plan
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Lincoln's Incentive
System

The company guarantees 30


hours of work 50 weeks a year
to each employee who has a
least 3 years of service.

Standard job evaluation


procedures set the base wage,
using six compensable factors
to determine the importance of
each job.
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Lincoln's Incentive
System

The majority of workers are on a


piecework incentive plan.

All employees may participate in


the suggestion program with
the exception of department
heads and members of the
engineering and time-study
departments.
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Lincoln's Incentive
System

Twice a year, a merit rating program


appraises the actual work
performance of each employee.

After the first year of service, each


employee annually has the
opportunity to purchase a limited
number of shares of company stock.
(Currently, about 75% of the
employees own 40% of the stock)
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Lincoln's Incentive
System

Employees elect representatives


to an "advisory board". The board
has the opportunity to suggest
changes in policies and
operations.

The annual cash bonus earned by


the employees closely
approximates their annual
earnings.
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Lincoln's Incentive
System

Independent work groups or


"subcontractor shop" operations,
perform their own quality control
and develop their own production
procedures in completing
subassembly operations within
given cost, quantity, and quality
parameters.
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Lincoln's Incentive
System

All profits of the business are


split three ways:
The corporation retains a share for
capital improvement and financial
security.
Shareholders receive
approximately 6% to 8% dividends.
Employees receive all remaining
profits.
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Timing Of Bonus
Payments
Christmas

Vacation

Bonus

Bonus

Annual

Lump-sum
Bonuses
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