Short-Term Incentives

 Those additions to base pay

provided to employees
within the current year.

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 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

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 Premiums & Differentials

Defined and Proscribed By:

 Wage and Hour Laws
 Pay Policy and Procedures
 Union Contracts
 Industry Practices

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 Premiums & Differentials

 Overtime Pay  Standby

 Shift Differential  Cleanup Time
 Weekend  Burdensome
 Holiday Work  Distasteful
 Call-back  Hazardous Work
 Reporting

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 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 S’s 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 short-term
incentives are taken is
normally determined by
some form of profit
measurement.

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Aggregating Employees For
Incentive Opportunities

The measures  Profit Before Taxes

used will vary by
organization and  Profit After Taxes
they are
normally formula
 Return On Equity
driven plans with  Return On Invested
one or more of Capital
the following
characteristics:

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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 Bonus

 Vacation Bonus

 Annual Lump-sum Bonuses

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