Incentive Pay & Team Based Pay

Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)

Professor Al-Qurmoshi Institute of Business

Management Hyderabad

1

Incentive PayIncentive pay rewards employees for achieving

defined goals. The company sets performance objectives at the

beginning of the pay period and if these are achieved, employees receive a lump-sum payment.

Incentive pay plans can be based on the performance of the individual, team, business unit or company.

2

Incentive Pay (Contd.)A lump sum payment (such as, sales commissions)

is the traditional method . Usually the formula & relationship between

performance and payment of the lump sum, are known beforehand.

Another traditional method of rewarding performance is piece rates.

Unless related to a reasonable time frame within which the production should be completed, such rates would not be related to performance.

3

Payment by Result (PBR)PBR incentive schemes are:➢Individual time saving – incentive paid for

time saved in performing a task ➢Measured Day work – a fixed amount paid

for predetermined & agreed level of working ➢Commission - a Bonus paid linked to sales,

reward pre-determined or percentage of total sales

 

4

Individual Performance Related PayIndividuals receive incentive as increases to

basic pay or cash bonuses, linked to performance

Scope provided for a joined pay progression within the pay bracket

High level of achievement may be rewarded by cash bonuses that are not consolidated

Individuals are eligible for such bonuses when they have reached top of pay bracket and completely progressed along their learning curve

5

Team-Based PayCompanies offer team-based incentive pay to

encourage team members to work together effectively.

Team-based incentives encourage collaboration and cooperation to achieve shared goals.

Collaborative teams will structure the work to ensure that each team member is able to use his skills and abilities most effectively.

For example, a team member with planning skills will organize the work flow while team members with technical skills will focus on completing the work.

6

Aim of Team Based Pay To reinforce behaviours that lead and sustain

effective teamwork To encourage group endeavour and

cooperation, rather than to concentrate only on individual performance

Research showed that most common method of providing team based pay, was to distribute bonus to team members

Design for team based pay will be contingent on requirements and circumstances of organisation, and these will always differ

7

Types of Team Based PayTeam Based Pay are of three types: Gain-sharingProfit-sharingEmployee stock ownership plans (ESOPS).

8

Gain-sharingGain-sharing refers to a compensation

system which divides between the employer and employees the results of improved performance consequent upon the better use of human resources resulting in productivity gains.

Sharing is according to an agreed, pre-determined formula.

9

Profit SharingThese schemes are linked to the profits of an

enterprise, a part of which is paid as bonus to employees

It may be a cash payment, or a deferred payment kept, for instance, in a special fund for a particular period.

10

Employee Stock ownership plan (ESOP)

Employee stock ownership plan (ESOP) - an employee benefit trust linked to share participation scheme

Trust receives contributions from company or borrows money and then buys shares in company and allocate to employees

Stock option schemes - permit companies to grant share to directors and employees in tax- effective manner

They are given opportunity to buy shares in their companies at a future date, but at the current price

11

Advantages of Team Based Pay

Team pay can: ➢Encourage team-working and co-operative behaviour

➢Act as a lever for cultural change in the direction of quality and customer focus

➢Enhance flexible working within teams and encourage multi-skilling

➢Provides an incentive for group collectively to improve performance and team process

➢Encourage less effective performers to improve in order to meet standards

➢Serve as a means of developing self-managed or directed teams

12

Disadvantages of Team Based Pay Effectiveness depends on well defined teams,

difficult to identify and they need to be motivated by a purely financial reward

Team pay may seem inappropriate to individuals whose feelings of self-worth could be diminished

Distinguishing what individual team would be rewarded may be difficult to identify

 13