Pay–for–Performance: Incentive
Rewards
Chapter
10
Chapter Outline
STRATEGIC REASONS FOR INCENTIVE PLANS
Incentive Plans as Links to Organizational Objectives
Requirements for a Successful Incentive Plan
SETTING PERFORMANCE MEASURES
ADMINISTERING INCENTIVE PLANS
INDIVIDUAL INCENTIVE PLANS
Piecework
Computing the Piece Rate
Piecework: The Drawbacks
GROUP INCENTIVE PLANS
Team Compensation
Gainsharing Incentive Plans
The Scanlon Plan
Improshare
Lessons from the Scanlon Plan and Improshare
Part 4 Implementing Compensation and Security
34
ENTERPRISE INCENTIVE PLANS
Profit-Sharing Plans
INCENTIVES FOR PROFESSIONAL EMPLOYEES
INCENTIVES FOR EXECUTIVES
The Executive Pay Package
Executive Base Salaries
Executive Compensation Reform
Generating Interest
This exercise will help students consider employee issues that can affect organizations that
use pay-for-performance.
Students are to assume that they have to make a decision between two job offers that have
comparable job assignments, nearly identical benefits packages, similar work environments,
Questions
1. Would you choose Job Offer A or Job Offer B?
2. If you chose Job Offer A, what was your most compelling reason for choosing the job
offer with a pay-for-performance component? Possible responses:
3. If you chose Job Offer B, identify the main reason for doing so. Possible responses:
a. You prefer the predictability of a set pay amount.
Chapter 10 Pay-for-Performance: Incentive Rewards
b. You’re not sure you can trust how the standards are being set for determining
the incentive reward.
Dealing with Trouble Spots
In this era of government bailouts, the intensity of executive pay scrutiny has escalated, as
have the criticisms that executive pay is excessive. The chapter section “Executive
In order to encourage students to see alternative viewpoints, ask your students if there can be
any justification for a CEO being paid 100 million dollars for a given year when his or her
company lost 50 million? Under what circumstances could that executive actually underpaid?
Hint: what if every forecast by every business expert indicated that the company would five
billion 500 million at the very least and there was no change in input prices, the market, or
the general economy – the only difference was a strategy developed by the CEO?
Here are supplemental resources to enhance the discussion:
1. Locate the latest executive pay data at www.forbes.com by keying in the search phrase
Involving Students
Have students discuss group or team projects that have been assigned to them in other classes
that they have taken. Havc they ever been in a situation in which some people did more