Base Pay (Salary) IssuesPay for Performance ObjectivesPay & Organizational StrategyPay for PerformanceIndividual IncentivesTeam/Group IncentivesTeam/Group Incentive PlansGainsharing PlansGE Information SystemsProfit-Sharing PlansPepsiCo’s SharePower ProgramImplications of Pay-for PerformanceBase Pay (Salary) Issues•Adjustments–Cost of living–Merit increases•Difficult to fairly differentiate and reward top performers in terms of base pay–Top performers: 6% increase (2% COLA, 4% merit)–Average performers: 4% increase (2% COLA, 2% merit)–Bottom performers: 2% increase (2% COLA, 0% merit)•Timing (performance - reward relationship)–Difficult to see the connection between your performance last year and your pay this yearPay for Performance Objectives•Motivate performance•Reinforce strategic goals–Focus attention on specific goals•Recognize differential employee contributionsPay & Organizational Strategy•Want to achieve a fit between strategy & pay practices–Pay is a key indicator of organizational strategy, objectives & culture–What behaviors do you reward & thereby encourage?Pay for Performance•All or a portion of pay will vary with measures of individual, team, department, division, &/or organization performance•Turns a portion of fixed labor costs into a variable cost–When performance declines, so does labor costs•Signals a movement away from pay as an entitlementIndividual Incentives•All or a portion of an individual’s pay is tied to their performance•Piece-rate•Commissions•Specific goalsTeam/Group Incentives•Examples of incentives:–Productivity improvements–Customer satisfaction measures–Financial performance–Quality of goods or servicesTeam/Group Incentive PlansAdvantages•Availability of measures•Cooperation is valued•TeamworkDisadvantages•Compensation at risk•Individual’s performance – reward link is stretched (“line of sight” is lessened relative to individual incentives –it’s more difficult to see)•Receipt of rewards depends upon othersGainsharing Plans•Employees earn bonuses based upon a predetermined gainsharing formula–Initially intended to focus attention on costs•Formula is tied to group or department performance measures–Based upon factors controllable by the group•Typically target a specific problem area–Supplies expense, quality concerns–Direct employee attention to the area/issue•Timing: Monthly or quarterly payouts–Reinforces the performance-reward linkGE Information Systems•Team-based incentive with links to individual payouts•Team and individual performance goals are set•If the team hits its goals, the team members earn their incentive only if they hit their individual goals •Incentive component is 12% to 15% of base pay and is paid monthlyProfit-Sharing Plans•Employees receive an annual bonus based upon company wide performance measures–Revenue minus expense = Profit•Disadvantages–“line of sight” is further stretched (performance-reward link is more difficult to see)–Less direct control•Advantages–Encourages employees to think about all aspects of the business and act accordinglyPepsiCo’s SharePower Program•What is the SharePower program and why did Pepsi implement it?•What are the pro’s and con’s of the SharePower plan?Implications of Pay-for Performance•Employees will need more information–Sharing of financial information–Training to understand the financial information (SRC corp. example)•Heightened pressure for performance–Pay can go up or down–Potential for unintended consequences–Need for