PowerPoint PresentationIntroductionPrograms Recognizing ContributionsMerit PaySlide 5Individual IncentivesProfit SharingOwnershipManagerial and Executive PayCEO-to-worker compensation ratioSlide 11Recognizing Employee Contributions with PayIntroductionOrganizations have discretion in deciding how to payEach employee’s pay is based on individual performance, profits, seniority, or other factorsRegardless of cost differences, different pay programs can have different consequences for productivity and ROI12-2Programs Recognizing ContributionsPrograms differ by payment method, payout frequency and ways of measuring performance.Potential consequences include employees’ performance motivation and attraction, culture and costs. Management style and type of work influence whether a pay program fits the situation.12-3Merit PayMerit pay programs link performance-appraisal ratings to annual pay increases.Merit Bonus - Merit pay paid in the form of a bonus, instead of a salary increase.12-4Merit PayCriticisms of merit pay:oFocus on merit pay discourages teamworkoMeasurement of performance is unfair and inaccurateoToo much emphasis on individual performanceoMerit pay does not really exist - high performers paid more than marginal and poor performersIndividual Incentives•Individual incentives reward individual performance but payments not rolled into base payoMust continuously be earned and re-earnedoPerformance measured as physical output rather than by subjective ratings•Individual incentives are rare because:oMost jobs have no physical output measure.oMany potential administrative problems.oEmployees may only do what they get paid for.oDo not fit in with team approach.oMay be inconsistent with organizational goals.oSome incentive plans reward output over quality or service.Profit SharingPayments based on a measure of organization performance (profits), and payments do not become a part of base payAdvantagesoprofit sharing may encourage employees to think more like ownerso labor costs are automatically reduced during difficult economic times, and wealth is shared during good timesDisadvantage-workers may perceive their performance has less to do with profit than top management decisions over which they have little controlOwnershipOwnership - encourages employees to focus on organization’s success, but may be less motivational the larger the organizationStock options - plan that give employees the opportunity to buy company stock at a previously fixed priceEmployee stock ownership plans (ESOPs) give employers certain tax and financial advantages when stock is granted to employeesManagerial and Executive PayTop managers and executives are a strategically important group whose compensation warrants special attention. Some companies' rewards for executives are high regardless of profitability or stock market performance.Executive pay can be linked to organizational performance. Increased pressure from regulators and shareholders to better link pay and performance.oSecurities and Exchange Commission (SEC)CEO-to-worker compensation ratio The Washington Post, Jan. 2016; Data provided by the Economic Policy InstituteYear Ratio1965 20/11978 30/11995 123/12013 296/12014 303/12015