RESULTS-BASED

INDIVIDUAL INCENTIVES
&
COLLECTIVE SHORT-
TERM INCENTIVES

Catherine Kurona Molisa

Aprimanti S Sandi Billy
Haikal RF Zaki Tanrere
Happy Angreyni
RESULTS-BASED CHAPTER 17
INDIVIDUAL INCENTIVE
Results-based Individual
Incentives
In results-based incentives plan, result-reward relationship can
be either standardised or configured according to a sliding
scale, whereby the rate of payment itself increases as output
rises.
Piece
Rates Labour-
Task intensive
& Time Manufactur
Bonus Plans

Retailing,
finance,
Sales
insurance
Commissions
and real

A major attraction of these results-based plans
for employers is that they offer greater
certainty, immediacy and objectivity in
pay-performance relationship than that
offered by other pay plans.
Standard Piece Rates
Standard piece rates are the oldest form of
performance pay, and the practice also
assumed considerable importance in industrial
area, both in new skilled occupation and in mass
production industries.

In Standard piece rate plan, employee receives

a flat rate of payment for each unit of output,
irrespective of volume of output or the time
taken.
Advantages & Disadvantages
Advantages
Establishes a clear and
simple linkage
between effort, results
and reward.
Lower-supervision
costs.
Eliminate the need for
organisations to pay
base pay
Disadvantages
Employees may reduce
their work effort
temporarily.
May cause employee to
Scientific Piece Rates
Frederick Winslow Taylor : The development of a
scientific approach to piecework.
Taylors differential piece rate system, unveiled in
1895

Using job analysis and systematic time study to identify what output a
worker working at peak efficiency was actually capable of producing task
by task, then aggregating these optimal output figures to set the productivity
benchmark and calculate the payment rate per piece .
 Scientific Piece Rates
Disadvantag
Advantages
es
more
sophisticated
than the
systematic
traditional
soldiering
flat rate per
unit of
output.
to do with
employers
habit of
cutting the
piece rate
Task & Time Bonus Plans

The modified results-based schemes developed by

several of Taylors contemporaries, including
Halsey and Gantt, and by later scheme designers
like Emerson and Bedaux.
 Emers Beda
Halsey Gantt
on ux
Scheme
the
designed
standa
to provid
rd
reduce ed
receiv
unit guara
ed a
labour nteed
bonus
cost as base The
additio
output pay, syst
nal to
rose and but em
the
involving emula uses
standa
a time- ted time
rd
based Taylor units
piece
incentive s ,
rate,
linked to metho calle
which
standard d by d
amoun
time prescr Bed
ted to
based on ibing aux
a de
past a Poin
facto
output gradu ts
higher
times, ated or B
piece
with a differe Poin
rate
premium ntial ts,
for
paid for effici
above-
beating ency
Individual Payment by
Results: Standard
Piece Rates,
Differential Piece
Rates and Premium
Bonus Plans
Sales Commissions
The retail sector equivalent of piece payment
and, like the latter, they may be flat-rate,
scaled progressively (or in cases
regressively), stand alone (commission-only
payment) or paid as an overlay to base
pay
 Sales
Commissions
Comparison
Advantages & Disadvantages
Advantages
Substitute for direct
supervision of sales
staff
Disadvantages
Commissions are
limited to sales
roles
Commission
earnings are also
notoriously
uncertain and
irregular
Goal-Based Individual
Bonuses
Performance-related payments are based
primarily on subjective performance
assessment in which behavioral criteria are to
the fore.
Goal-based bonuses may be based on either a
flat scale or a sliding (progressive or
regressive) scale.
Bonus payments are based on aggregrate
performance across a series of goals measured
by means of KPIs.
Goal-Based Individual
Bonuses
COLLECTIVE SHORT- CHAPTER 18
TERM INCENTIVES
 Introduction to Collective
Incentive
Focus on rewarding the collective
performance of business unit, work
groups and/or teams
Why Collective Positive of Collective
Incentive? Incentive
Encourage employees to
Individual incentives
work collaboratively
may be quite
to achieve goals
dysfunctional in Draw the win-win
oraganizations where situations
work is organized on Encounter less
interdependent and opposition from trade
cross-functional lines unions than are
organic structure individual incentive
plans
and a high-
Reinforce grup
involvement cohesion and
management style
Profitsharing
Bonus payments
additional to base pay

(Usually) annual basis

Based on a total bonus

pool periodic
(typically annual)
profit, such as net
profit or net profit
after tax.
Profitsharing
Current Distribution Plans
The firm distributes a proportion of its profits directly to its
employees.
Deferred Payment Plans
The firm distributes a proportion of its profits at a later date
(retirement or termination plan).
Combination Plans
Such plans therefore combine the best of all possible
worlds: an immediate cash incentive, a long-term retirement
fund and a deferred and/or reduced tax liability.
 Four Key Plan Design Issues
PLAN TYPE DETERMINING BONUS POOL SIZE

The Payouts : Fixed Proportion of Profits

Current vs Deferred Fixed percentage of annual profit
Variable Proportion
The Payments Form :
Cash vs Equity Sliding scale formula

THE DISTRIBUTION ELIGIBILITY

Equal Amounts Organization-wide
Contribute equally to profitability Entire workforce
Proportion of Base-Pay
Measure of employee based pay
Basis of Seniority Specific Groups
Related to length of services Particulary middle/ senior managers Or,
Individual merit Confined to specific plants, divisions or
Link to individual performance appraisal business units
Potential Profitsharing
Advantages
1. Improve employee task motivation
2. Total labor cost vary with capacity to pay
3. Employment stability by reducing the
need for retrenchments in times of
downturn
4. Reduce need for supervision
5. Enhance membership behavior
6. Increase employees identification with
and understanding of the organization
7. Contribute to the development of positive
work group norms
8. Improve labormanagement relations
and reduce industrial conflict (common
interest in organizational success)
Potential Profitsharing
Drawbacks
1. The line of sight between individual
performance and reward is likely to be weak.
(Profitability is influenced by many variables
beyond collective control)
2. Profit sharing may give rise to free riding
or social loafing
3. The larger the eligible workforce size, the
weaker the likely line of sight between effort
and reward (1/N problem)
4. A run of low profitability can cause
significant reward dissatisfaction and
demotivation
5. Profit sharing cannot differentiate between
operating units within the organization in
terms of differential contribution to overall
Gainsharing???
Gainsharing
A form of collective performance-related pay in which
management shares with all employee, thus have four defining
features:
1. A focus on measurable results that are within employees
collective control.
2. The specification of historical baseline of financial
performance against which subsequent financial gains can
be determined.
3. The use of a predetermined formula for sharing the monetary
gains between organization and employee
4. A formal system of employee participation in making
suggestions and decisions about ways to improve work group
Two main categories of Gainshare

Multifactor
Schemes
Traditional,
Single-factor
schemes
 Traditional, Single-factor schemes

Scanlon

Rucker

Improshare
plans
 Advantage vs Disadvantage
Strengthen employee Costly establish and
commitment and administer
membership behaviour
May be seen as posing a
Support high-trust and direct threat
involvement culture
Unsuited to situations of
Can be applied in public continuous change
sector and other non-
They may still encourage
profit organizations
free riders and social
Being productivity- loafing
focused
 Multifactor Schemes

Incorporate multiple measures of group performance

incorporating both hard and soft criteria. Most
multifactor plans take losses into account as well
as gains.
Multifactor schemes may also incorporate measurement
of non-financial results. For instance, a service
organization might factor in not only the controllable cost
of service delivery but also service delivery time and the
level of customer complaints.
 8 Key Considerations
Work group Size of bonus payout
compatibility

Performance Criteria Management attitudes

Performance Employee involvement

Benchmarks

Method of payment Union attitudes

distr.
Team Incentives
Team incentives - the emphasis is on recognition and
reward for small works group of perhaps just five to ten
members
Five main dimension to team structure:
1. The degree of autonomy
2. The nature of the work flow between teams
3. The degree of functional diversity within the team
4. The degree of time commitment required
5. The time frame of team existence
 Three Team Types
Process Team Parallel Team Project Team
Membership on full Members spending Requires members
time basis only a portion of to relate to each
Team will involve their work time in other frequently
multiskilling a team context Interaction with
Substantial task Crossfunctional other team
interdependence Short term or Likely to be
semi-autonomous semi permanent crossfunctional &
external Low to moderate diverse knowledge,
supervision by autonomy skill, ability
line managers Meet periodically High degree of
autonomy
Full time basis
Design and implementation of team incentives
plans
1. Choose team incentives at all?
Depend on how self managing and autonomous the work of
team
Little interdependence between team team incentives
High interdependence between team gainshare or goalshare

2. How should team performance be measured?

Many exponent of team pay recommended goal setting rather than
historical benchmarking
Performance criteria, there are two alternatives : single factor &
multiple factor
Single factor hard criterion like labour productivity or labour
cost saving
Multiple factor combine financial goals with non financial
criteria, such as customer satisfaction
Design and implementation of team incentives
plans

3. Distributing rewards to team members

Team bonuses paid as an equal dollar payment to each
team member
Team bonuses paid as a percentage of individual base
pay
Individual merit bonuses based on on performance
appraisal
Team non-cash recognition award
Design and implementation of team incentives
plans
4. What incentives approach is best suited to each type of
team?
Advantages of team incentive plans

Micro-focus, targeting performance of small work groups

They can be tailored differently for each team
Improve team performance by encouraging cooperative
behaviour
They can help to align organisational and team
objectives
Peer monitoring is likely to be more intensive with small
grup incentives
Disadvantages of team incentives

They may have perverse effect on team member sorting

and performance
Employees may feel that team incentives under value
contribution
Team incentives can give rise to conflict over peer
surveilance and peer pressure to perform
Performance criteria can easily fall out of alignment with
goal of business
Team incentives cannot, by themselves, deliver effective
teamworking
Goalsharing
A collective incentive plan whereby group
performance is measured and rewarded in terms of
goal achievement over short time frames

A series of Determined
Group is paid
goals are paid amount
based on goal
established for each goal
achievement
and fixed achieved
Characteristic of Goalsharing
Not self-funding

Future Oriented

Sliding Scale
Scheme

Not emphasizing
employee
participation
Potential Advantage &
Drawbacks of Goalsharing
Advantages Disadvantages

Future Focused Not self-funding

Simpler to develop and No objective basis for
more flexible determining a payment level
Strategically aligned Can be seen as arbitrary
Targeted at smaller work Goals can be changed too
groups easily
Employees focus on
rewarded goal only
Social loafing is still
possibility
Best fit with Short-Term Collective
Incentives
Some collective incentive plans will be better suited to some
work situations than to others
Profitsharing is likely to be a better fit for small-to-
medium-sized establishments than for large
organisations. Profitsharing is well suited to
organisations with a high involvement
management style.
Gainsharing also functions most effectively in small- to
medium-sized entities. it is well suited to a high-
involvement style, to firms with quality enhancement
Best fit with Short-Term Collective
Incentives
Goalsharing is well suited to high-involvement
prospector firms and business units. High-
involvement prospectors may also look to multifactor
plans to furnish the flexibility needed to accommodate
ongoing changes in technology and product or service
type.
Team Incentives are well suited to organisations
characterised by task interdependence,
crossfunctionality, project work and participative
management. This means that it is appropriate for both
Group-Based Pay-for-Performance Plans and
Hyondong Kim &
Firm Performance:
Kyra L. Sutton &
The Moderating Role of Empowerment Yaping Gong
Practices
Introduction
This study seeks to meet two objectives:
1. Examining the extent to which the presence of
empowerment practices enhances the effect of group-
based pay-for-performance plans.
2. Investigating the impact of empowerment practices on
the performance and functionality of management and
administration teams in several industries, including
manufacturing, financial institutions, and a variety of
other service-based firms.
Hypothesis
Hypothesis 1 Hypothesis 2
Empowerment practices
Group-based pay-for- will positively moderate
the effect of group-based
performance plans are
pay-for-performance plans
positively related to
on firm performance such
firm performance in the that the effect is stronger
South Korean society. when empowerment is
greater.
Methodology
The KRIVET (Korea Research Institute of
Vocational Education and Training) research
team developed the questionnaire in
Korean, the researchers included survey items
drawn from major journals published in the U.S
to South Korea (e.g., Journal of Applied
Psychology, and Academy of Management
Journal).
Bilingual experts employed the back-
translation procedure to ensure accuracy,
and to correct any discrepancies.
Result
Group-based pay-for-performance plans enhance
both objective and subjective measures of firm
performance.
Furthermore, consistent with the contingency
perspective of fit, we found that empowerment
practices positively moderate the relationship
between group-based pay-for-performance plans and
firm performance.
These findings suggest that empowerment can
enhance the effectiveness of such pay plans. We
Conclusion

Empowerment practices can increase the

effectiveness of group-based pay-for-performance
plans.

Managers must take into account empowerment

levels and recognize its role in the design and
implementation of group-based pay-for-performance
plans
Any Question?