3 3 4

Any compensation plan that emphasizes a shared focus on organizational

success,broadens opportunities for incentives to nontraditional groups (such
as nonexecutives or nonmanagers), and operates outside the hase pay increase
system
it is estimated that over 60 percent of medium to la. ge firms in the United
States have some type of variable pay program for nonexecutives.7 Sixty-six
percent of respondents have variable pay programs for executives. Included in
the ACA calculations as variable pay are individual incentive awards, special
individual recognition awards, group and team awards, and scheduled lunp-sum
awards. As you will see from Exhibit 11.l, which shows percent of employees
receiving variable pay in three categories (hourly nonunion, nonexempt, am..
exempt), a higher percentage of Canadian employees of all three types receive
variable pay adjustments.
in order to implement successful variable pay systems, companies must be sure
their plans are based on clear goals, unambiguous measurements, and visible
linkage to employees efforts. Key design factors include:
1. Support by managementexecutives and line managers must demonstrate
commitment.
2. Acceptance by employeesemployees must accept the plan as equitable.
3. Supportive organizational culturethe organizations culture must be based
on teamwork, trust, and involvement of employees at all levels when setting
performance goals.
4. Timingthe plan must be launched when there is mmm al risk of economic
downturns that would affect the size of the awards.8
Hewlett-Packard (HP) Systems has for many years been an example of innovation
and trendsetting human resources policies, including introducing new types of
variable pay. HP acquired Colorado Memory Systems, a small manufacturer of
computer components, and wanted to have a smooth acquisition. At the time of
the acquisition, Colorado Memory was about to go public, and loyal employees
were eager to become owners of the business. HP wanted to keep Colorados
employees loyal and enthusiastic, so it designed a variable pay system that
would help retain employees and assimilate them into HP at the same time
Building on an existing profit-sharing plan, HP created a new system for
Colorado. First, base pay for all employees was raised to 90 percent of
comparable pay at HP. The remaining 10 percent was dedicated to a gainsharing
scheme called success sharing. At the end of the first quarter, Colorado
employees exceeded their goals ay 20 percent and took home a matching 20
percent quarterly bonus!9
With variable pay, a percentage of an employees paycheck is put at risk. The
result is that if business goals arent met, the pay rate will not rise above
the lower