Team and organizationwide incentive plans

How to design Team Incentives

As we already know firm rely on team performance to manage their work or in other word the key of success firm is its team performance.so we needs incentive plans that could encourage or peaked their performance. The main question here is, how to reward the team performance, it because wrong choice can prove lethal. example : levis strauss installed a team incentive plan that rewarded the team as whole as for its output (quantity of product produced) that neglecting some employees worked harder than another.it caused slowed down performance that ended in closing up levis factories in U.S. So, main idea here is how incentives could makes all team member pulling together and peak their performance. other approach is still used rewards to whole team but difference is the parameter to measure their performance is not only quantity of product but efficiency of work. take example the term total labor hours per car is used as work standard to produce a car or time that needed to produce a car, (which its firm standard).the employees will earn incentive (In this book states 5%) if they could fulfill this standard, but if they couldnt they didnt get this bonus or less bonus.

Engineered standard
approach like total labor hours per car or total wheels per hour which well known as engineered as engineered standard sometimes sensible enough to distributed incentive and boost team performance but next problem occurred when incentive distributed. using this approach ,the share of incentive distributed fairly to all member of team. Sometime, the employer want to be pay different according their performance. This tought that makes new incentive became demotivate to them and thats what happened at levis.

Pros and Cons of Team incentive

Team incentive sometimes often make sense, because they reinforce the team planning and problem solving and can help ensure collaboration.in Asia in general (and Japan In particular ),the tendency toward team incentive is to reduce jealousy, to make group member indebted to one another and to encourage a sense of cooperation. But main disadvantages is what I call the levis problem. So to solve this pros and cons and to improve disadvantage of team incentive we used organizationwide incentive plans.Organizationwide incentive plans are plans in which all or most employees can participate and which generally tie the reward to measure of company wide performance.this plans include profit sharing,Scanlon/gainsharing plans and employee stock ownership (ESOP ) Plans

Profit sharing plan

Profit sharing plans are the plans in which all or most employees receive a share of firm annual profits.research on such plans effectiveness is sketchy, one study concludes thats there ample evidence thats profit sharing plans boost production and morale but their effect on profit is insignificant once you factor cost of planspayouts. There are several types of profit sharing plans. 1.current profit sharing plans Employees share in a portion of the employer.s profit quarterly or annually in.in cash plans the firm simply distributed a percentage of profit (usually 15% to 20%).Home depot starting in 2003.started paying store associates bonus if they could meet certain financial goal (ex,this year sales increased 10% or net profit this year min 20 million etc). 2.deffered profit sharing With this approach the employees puts cas award into trust account for the employees retirement.here the employees generally distribute the awards based on a percentage of employees salary or some contributions to company profit.there is tax advantage,since employees income on the distribution are deffered often until retires.

Scanlon plan
The most powerful way of ensuring employee commitment is to synchronize the company goal with those of its employee in other word ,to ensure that by pursuing his or her goal the worker pursues the employers goals as well.Expert have proposed many techniques for attaining this ideal states. But only few that success like Scanlon plan.this plan developed by Joseph Scanlon a United Steel worker Union official and still popular until now. Scanlon plan have five basic feature : 1.Phylosophy of cooperation 2 identity 3.Comptence 4.involvement system 5.sharing of benefit formula

Other gain sharing plans

Scanlon plans is methods or original method for what we know as gain sharing plan.Gain sharing plans.Gainsharing is an incentive plan that engages many or all employees in common effort to achieve a company s productive objective with any resulting cost saving gains shared among employees and company.in addition there are more gain sharing method like Lincoln ,Rucker and improshare plans. Basic difference among these plans is formula employers use to determine employee bonuses : Scanlon formula divides payroll expenses by total sales (or,sometimes by total sales plus increases in inventories ) Rucker formula divides value added for period (basically net sales cost material,supplies and service such utilities ) Improshare plans.bonus depends on the difference between how many labor hours the company should have used for period,compared with how many actually used. Lincoln plans.total annual profit (less taxes,6% deviden to stockholder and reserve) each year among employees based on their merit rating. There are eight basic step in implementing a gainsharing plan : 1.establish general plan objectives,such as boosting productivity ir lowering labor cost 2.choose specific performance measure for example use productivity measures such as labor hours per unit produced. 3.decide the portion of gain the employees will receive.in Scanlon for example mentioned earlier,employees receive 75% of gains. 4.decide on the method for dividing and distributing the employees share of the gains.popular methods include equal percentage of pay or equal shares. 5.choose the form of payment.this is usually cash,but occasionally is common stock 6.decide how often to pay bonuses.firms tend to pay based on financial performance measures annually and on labor productivity measures quarterly or monthly. 7.develop the involment system,the most commonly used element include steering committee,update meetings,suggestion systems,and problem solving teams. 8.implement the plan.

At-Risk Pay Plans

At-risk variable pay plans (sometimes called risk sharing plans) are plans that put some portion of the employeess weekly,monthly or yearly pay at risk.if the employees meet or exceed their goals,they earn back not only the portion of their pay that was at risk but also an incentive.if they fail to meet their goals,they forego some of the pay they would normally have earned.

Employees Stock Ownership Plans

Employees stock ownership plans (ESOPs) are company wide plans in which the employer contributes shares of its own stock (or cash to be used to purchase such stock) to a trust established to purchase shares of firm s stock for employees (max 15% compensation).this share usually will given to employees when they retire. Research suggest ESOPs do encourage employees to develop a sense of ownership in and commitment to firm.