Professional Documents
Culture Documents
Assignment No.
Discipline
Term
Submitted By
Examination Roll No.
ASSIGNMENT QUESTIONS
Q.1: Meaning of rewards and incentives, Features of the incentive plan,
Determinants of incentives?
Q.2: Classification of rewards and incentives, Classification of incentive scheme,
Wage incentives: objectives of wage incentive scheme?
Q.3: Definition and paradox of downsizing, Reasons for and merits/demerits of
voluntary retirement scheme, Nature, determinants and variable related to the
selection of the most appropriate (PFP) system?
Q.4: Meaning of Compensation and Rewards, Types of Compensation and
Rewards, Importance and purpose of Compensation and Rewards, Principles of
sound, compensation and Rewards Administration?
Q.5: The Concept of Wage Levels and wage Rate, The Concept of Wage
Structure, Determinants of the Wage Structure?
These
rewards
include
flexible
work
hours,
training
increased
morale
and
positive
workplace
attitudes.
Employee
objective
(results)
and
subjective
(appraisal)
factors.
Often
subjective factors can have a significant effect on the final reward, so its
vital that employees understand how these subjective factors are measured,
who measures them, and what their direct relationship is to that person or
persons.
That said, no matter the weighting of factors or balance of control, an
incentive programs goal must be achievable. For example, an incentive
program that requires you to achieve 130% of your target in order to qualify
would be considered by most people unattainable, and would be more likely
to cause a mass walkout than motivate your staff to try harder.
The objective and subjective factors of an equitable incentive program must
be within reach of the individual. Large teams in particular will often have a
spread of achievers, from low to high. Those that go above the mark need to
know theyll be appropriately rewarded for their efforts, and those that
struggle to make their mark need to know there are systems (such as catch-
up or claw back programs) in place to help them make up the shortfall over
longer periods.
In most organisations theres an entry point below which no one receives a
bonus, for example, less than 8590% of target. There is then a sliding
upwards scale up to 100%, and beyond 100% theres usually an exponential
multiplier, usually capped at 130%. In this way you need to show a certain
flair for the role to achieve reward, but the company is protected so that you
cant go too far beyond whats realistically attainable (and affordable) to the
organisation.
While were on the subject of clarity and equitability, any qualification or
entry points to an incentive scheme must be clear. Not only does everyone
need to know the weighted qualification points of the scheme, but they also
need to be clear on eligibility to participate in the program. For example,
most organisations have a probation period (up to six months in some cases)
before which entry to an incentive scheme is closed or limited. Importantly
this needs to be clear for new starters as well as people changing roles inside
the same organisation (eg: a Sales Rep moving into a Manager role),
especially where different departments are governed by different schemes.
For new starters there is always some trepidation regarding what type of
territory they have inherited, often referred to as the carry-over effect,
where a new employee joins a company in a territory or market thats either
over-performing or under-performing. An employee may have inherited a role
where momentum is already in place and performance all but assured
whereas others may face market share saturation with limited opportunities
for growth. This is often considered a factor outside the employees control,
but at the same time can work to his advantage or disadvantage and may
result in discretionary incentive adjustments.
Remember that people are not looking for the same target, but a fair target
that reflects the opportunity within their sphere of influence. An incentive
goal should be based on logic and be auditable and explainable by both the
rep and management.
Communication is key to managing a fair and equitable incentive program,
as is transparency. People need to know that if theyve had a bad quarter
or cycle, that catch-up programs are available.
In summary, an incentive scheme that doesnt take any of these factors into
account and does not motivate personnel to achieve their best is likely to
result in unhappy staff, and a company with high staff turnover. Conversely,
a fair, equitable, transparent and achievable incentive scheme is critical to
motivating and retaining employees and driving business growth.
Incentive Differential Plan
An incentive is something that motivates an individual to perform an
action. The study of incentive structures is central to the study of all
economic activities (both in terms of individual decision-making and in
terms
larger
institutional
the
differences
in incentive
structures faced
by
Another primary factor that determines wages is the demand for the
worker, which is a derived demand for the product or service that the
worker provides. If the worker provides a product or service that is highly
desirable, then a higher wage will prevail for a given supply of workers
who could do that job.
Sometimes, ability makes a very large difference in wage potential that
far outweighs the differences in ability. The winning horse earns a lot
more than the one that comes in 2nd even though it is only a little faster.
There are only so many jobs for professional athletes, so only the very
best are going to be chosen for those high-paying jobs. Likewise, only the
best musicians or those producing the most desirable music will become
wealthy. People only have so much time and money for entertainment,
so they tend to select entertainment performed by the best people,
especially entertainment package for mass consumption.
Compensating Differentials
Some jobs pay more because they are less desirable. They may be
hazardous, dirty, and employment may be sporadic or seasonal. For
instance,
construction
pays
more
than
retail
sales
because
of
Court
justices,
yet
few
lawyers
would
turn
down
an
jobs from their network of friends and acquaintances, who tend to live in
the same area. Hence, the lack of information can lead to persistent
differences in wage differentials for the same type of job.
Performance Pay
Many occupations pay a wage rate that is commensurate with
performance, such as sales or managerial occupations. The purpose of
performance pay is to attract the most highly qualified and productive
workers, or as economists like to say, workers with highest marginal
revenue productivity.
Performance pay is also used to motivate workers to work. Many
employees paid a flat wage rate often linger or dawdle, which lowers
their productivity and the employer's marginal revenue product.
Dawdling employees can also lower morale, since harder working
employees resent being paid the same as the dawdling employees.
Performance pay helps to solve this principal-agent problem by
aligning the interests of the employees with that of the owners of the
firm both want to make more money.
There are various types of performance pay. Piece rates are paid
according to the amount of work accomplished. Many factories use piece
rates to prevent dawdling.
Commissions are often paid as a percentage of sales, in such industries
as real estate, insurance, securities, and retail sales.Royalties are paid
to artists who actually create a product and, like commissions, is usually
a percentage of the sales price of the product. For instance, authors may
receive 10% of the price of a book for each book that they sell.
Bonuses and stock options are often paid to executives of the company
so
that
they
work
harder
to
ensure
that
the
company
will
succeed. Bonuses are lump sum payments which are often paid at the
end
of
the
year
after
the
employee's
performance
can
be
which
can
result
in
more
experienced
workforce.
Piece rates may result in sloppy work as workers rush to make more
money.
In these plans, workers are paid in proportion to their output. These include
both individual and group incentive plans. In the individual incentive plan,
each worker gets the reward on the basis of his performance during the
period under consideration.
Group incentive plans are used when two or more workers work as a team on
an operation in such a way that the performance of one is dependent on the
performance of others. The workers are paid under these plans upon their
base rate and on the basis of performance of the group or team as a whole
for the period in question.
Individual incentive plans are preferred over the group plans since they are
easy to apply and are result oriented. If an individual worker/ employee puts
in greater effort, he gets more and if he shirks work he accordingly gets less.
(2) Indirect Financial Plans:
Under these plans, the amount of incentives or compensation is not related
to the amount of production. The employees are provided indirect financial
benefits. Organization policies such as guaranteed annual increments in
salary for satisfactory performance.
Equitable promotion policies, and relatively high fringe benefits fall in this
category of incentives. Benefits of such plans tend to decrease with the
passage of time employees take for granted the incentives given to them
and fail to recognize the importance of productivity in continuance of such
schemes.
2. Non Financial Plans:
These plans are generally connected with emotions of individuals. They
include things like spirit of competition, feeling of inclusion, gratitude, shame
of poor performance and some other factors which tend to encourage good
performance. However these incentives can only help to make the financial
incentive more effective.
Employee Incentive Programs reward exceptional employees for reaching
work goals, achieving milestones or simply doing a good job. These types of
programs
are
designed
to
offer
incentive
and
rewards
to
valued
Mutual
Rewards
line
increases
as
the
Increased
employees
productivity
peaks.
motivation
offer
#3
these
Increased
incentives.
company
morale
absenteeism
and
Increase
overall
company
company
costs.
loyalty
Company loyalty is not something you can buy. However incentives for good
work and rewards for hard work go along way to securing commitment from
employees. Employee incentive programs show employees the company
values their input and their work. If an employee feels valued and
appreciated they are more likely to form an allegiance to the company.
#5
Increased
productivity
#6
are
Increase
more
productive
objective
and
motivated.
achievement
Incentive Programs are a great way to reach targets and company objectives.
Using an Incentive Program employers can set realistic goals and reward
employees when the reach them. This is a great way to boost productivity
and
morale
while
#7
at
the
same
time
Reduced
achieving
company
company
goals.
costs
click
on
#8
the
link
to
receive
Reduced
quotes.
Absenteeism
The bottom line with incentive programs comes down to the very simple fact
that people like being rewarded for hard work and a job well done. The
rewards are only part of the equation. Incentive schemes show employees
the company cares and appreciates the work they are outputting. If an
employee feels appreciated and has clear targets that result in rewards then
they
are
more
likely
#9
to
want
to
come
Team
to
work.
Work
harmony
#10
Incentive
within
the
Decreased
Programs
foster
happy,
productive
workplace.
Turnover
working
environments.
Employees enjoying this kind of environment will be more likely to stay long
term. This means incentive programs reduce the amount of turnovers within
the company. The advantage of consistent staffing is that you are not
spending money on recruiting or training new staff. You are also able to
retain loyal committed employees with a vested company interest.
This mode has come about in India as labour laws do not permit direct
retrenchment of unionized employees.
Definition: Voluntary retirement scheme is a method used by companies to
reduce surplus staff. This mode has come about in India as labour laws do
not permit direct retrenchment of unionized employees.
Description: VRS applies to an employee who has completed 10 years of
service or is above 40 years of age. ?It should apply to all employees (by
whatever name called), including workers and executives of a company or of
an authority or of a co-operative society, excepting directors of a company or
a
co-operative
society.
are set, then when employees meet a goal, they are compensated
accordingly. This could be a number based on the amount of sales during a
period of time, annual revenue, performance reviews or any number of other
measurements. In fact, one of the most significant considerations in whether
or not pay-for-performance compensation is the best idea for your business
is the type of incentive payment youre using.
The devil is in the details
The saying the devil is in the details has never been truer than when it
comes to pay-for-performance. While some companies have seen enormous
success, others have wasted time, energy and money trying to make it work,
and the difference almost always lies in the details. There are a number of
things to consider and they all play a part in how you formulate and execute
a pay-for-performance system, including the decision of whether or not its
the best option for your situation.
A significant portion of the success or failure of this compensation system
lies with who will be receiving the incentive pay. After all, the premise of payfor-performance is that employees are motivated to help the company
achieve success because they in turn are positively impacted. So the big
question is, will this new system motivate your employees? As you can
imagine, it all depends on how much an employee stands to gain, and those
whose base compensation is higher will naturally have the potential to make
more as a bonus. For those who only have the potential to earn an
insignificant amount, there is little motivation to go above and beyond.
Knowing this, its easy to see why those in management or executive roles
are more motivated to outperform than those in lower-level roles. However,
according
to
Towers
Watsons
Using
Targeted
Incentives
to
Drive
security. A wage (or pay) is the remuneration paid, for the service of labour
in production, periodically to an employee/worker.
Wages usually refer to the hourly rate or daily rate paid to such groups as
production and maintenance employees (blue-collar workers). On the other
hand, Salary normally refers to the weekly or monthly rates paid to clerical,
administrative and professional employees (white-collar workers).
Types of Compensation
The operating companies need to develop a compensation package for their
employees depending on the size and type of business, employers may
choose to compensate their employees in a number of different ways.
Below is given the different types/methods of compensation:
1. Wages and Salaries
Although we use the terms wages and salaries interchangeably, in payroll
accounting, the two terms have different definitions Wages refers to the
earnings of employees whose pay is calculated on an hourly basis. Salary
refers to the earnings of employees whose pay is calculated on a weekly, biweekly, semi-monthly, or monthly basis.
2.Commissions
Sales commission plans vary greatly from company to company, but are
generally based on the dollar amount of sales made during a payroll period.
Commission income is considered the same as wages or salaries for
withholding and reporting purposes. Commissions are usually computed on a
certain percentage or commission rate. Some commissioned employees may
not be exempt from the minimum wage requirement. The employer must
determine the regular, hourly rate for each non-exempt salesperson during
the week and make sure this rate is at least equal to the current minimum
wage.
3.Piece-Rate Plan
Workers paid on a piece-rate plan receive a certain amount for each item
produced. Gross earnings equal the rate per item multiplied by the number
of items produced during the payroll period.
4.Combination Plan
Many businesses pay sales people both a salary and a commission. Such a
combination plan provides some regular income and offers an incentive for
superior sales.
5.Draws
Draws are often given to salespeople who work only for commission. A draw
is an advance given to a salesperson that will be collected when future sales
transactions are closed. Draws will be subtracted from a salespersons
commissions after any applicable taxes and deductions have been withheld.
The draw is subject to all payroll withholding taxes.
Other Types of Earnings
6.Bonuses
Businesses offer bonuses in many different ways. Some bonuses are based
on profitable operations of the business and are paid at year-end. A common
type of bonus may be offered to salespeople for selling a specific item.
Another type of bonus plan, one that may be part of an employment
agreement, pays managers if the yearly sales or profits reach a certain level.
7.Profit Sharing Payments
A profit sharing plan, like a bonus plan, can be structured in a number of
different ways. An employer may elect to pay cash to employees, give them
stock in the business, or set up a deferred compensation fund for retirement.
8. Other Taxable Forms of Compensation
Sometimes other payments to employees are required that are equivalent to
wages. These include non-cash fringe benefits, reimbursed expenses, sick
pay, supplemental unemploymentbenefits, and tips. As with any form of
compensation, these payments are subject to federal taxes.
9.Non-Cash Fringe Benefits
Non-cash fringe benefits must be included in an employees gross earnings.
taxable
fringe
benefits,
awards
and
vacation
pay
on
Q.5: The Concept of Wage Levels and wage Rate, The Concept of Wage Structure,
Determinants of the Wage Structure?
Wage levels result from individual and collective negotiations between the
employees (and their representatives) with the management (and the
owners) of firms.
In public bodies, laws and negotiations decide wages. A government wanting
to cut public expenditure might try to freeze or reduce public wages,
whereas a stimulus-oriented policy might include increases.
Firms and organizations pay wages to employees usually depending on
working time and/or on results (production made or objectives reached).
previous
mobilization;
and
current profitability of
employers;
4.
sales
external
conditions
exert
only
marginal
role
in
internal
be
characterised
by
much
lower
wage
expectations than the employees and they are prone to more flexible
working conditions, but they lack competence and are often characterised by
lower productivity.
This analysis explains on the one hand, why a higher unemployment may
brake wages but also, on the other hand, why wages can grow even if there
exists unemployment.
wages
mean
higher income in
most
families;
thus
negotiations will fix wages for one or more years in advance, making usually
them unresponsive to short-term labour market fluctuations.
Still, it is quite intuitive that a situation of full employment, healthy firm
performances and good perspectives will tend to raise wages. Recession,
with its gloomy perspectives for labour will tend to brake wage dynamics.
Even before nominal wages are adjusted to the labour market conditions,
recession usually shrink working hours, and especially overtime. This quite
automatically reduces workers' income and the weighted average of wage
rates.
If recession goes further, some firms will fire people. The sequence in
which fringe and core workers are fired will move the average wage rate in
that industry. If fringe workers are fired before the core, then this tend to rise
the average rate. Some core worker can however receive part of their wages
as bonuses from the economic conditions of the firm: this component will
usually go down or disappear as the latter deteriorates.
But falling nominal wages are powerful depressors of labour commitment
and productivity; they put a pressure on workers to leave the firm looking for
a better one, or even to emigrate if the situation is too bad in the whole
domestic economy.
In
short,
wages
are
moderately
pro-cyclical.
If
labour
is
weak, recovery periods may only unevenly impact wages. If, on the contrary,
labour is strong, higher productivity and profits and will be reflected in higher
wages. This may spread expansionary forces and allow the system to enter
in a booming phase. In this moment, an increase in minimum wages is very
effective in raising domestic demand (and tax revenue) without inflationary
pressures, as there is still room in the production capacity and investments
ramp up to widen it.
THE END