...Compensation Incentives Theory and Practice Compensation is the direct financial consideration offered by employer to employee in return for work done or service offered by employee during the period of employment. Incentives are ‘extra’ benefits given to employee in recognition of high quality performance. Incentives also ensure employee-loyalty to organization. In a way, incentives inspire employees to put in ‘extra’ effort in ‘work performance’. This management practice reduces ‘employee turnover and provides continous ‘harmonious’ workplace environment. This strategy is also implemented for new recruitment. Sometimes, organizations may not offer high ‘remuneration’ to attract best talent in business; but the ‘extras’ like additional accommodations, facilitations and flexibility offered attract talented employees. The practice is based on human psychology that forms individual preferences and choices; and makes employees feel ‘important’ and with sense of dignity. The employer organization can offer “direct financial, indirect financial and non financial compensation” to the extent that will prove beneficial to all concerned. (Compensation Systems: Design and Goals). This paper discusses forms or manner in which incentives are offered by employers and how incentives affect, impress and prompt employee response. Challenge, struggle and chaotic times are upon society, affecting not only the indivuals but the organizations as well. During these times, the need to achieve...
Words: 3580 - Pages: 15
...| Cybernetics Method to Incentive compensation Management | @ TCS | | Amit Sharma ,Jasveen Singh, Rajat Bindlish,Siddharth Tiwari,Vaibhav Attree | | Group 11 | 6/12/2013 | | Contents 1 Introduction: 1 1.1 What is Sales ICM? 1 1.2 What is Cybernetics? 2 2 The Cybernetics Approach to Sales ICM 2 2.1 Cybernetics Influence Diagram (CID) 3 3 Sales ICM CID 4 4 Feedback Loop Analysis 6 4.1 Feedback Loop – Commissions Calculations 7 4.2 Feedback Loop - Clawback Calculations 8 4.3 Feedback Loop – Revenue and Cost of Sales 9 4.4 Feedback Loop – Dispute Management 11 5 Conclusion 12 * Introduction: Sales Incentive Compensation Management (ICM) Model is increasingly becoming the key decisive and motivating factor in influencing sales execution to impact the business performance. As sales models are being re-engineered to incorporate more market dynamics and adversities, sales compensation models are also becoming increasingly complex. In the global market where increasing customer reach is a major challenge, it has become essential to include dealers, partners, distributors, retailers, contractors, buying centers across various sales channels into the business’ Sales ICM model. Accurately measuring and rewarding the performance of the sales force (both internal and external to the business) has become the key to driving desired behavior in achieving the business objectives. Failure to understand Sales ICM as a key...
Words: 3802 - Pages: 16
...ISSUES FOR COMPENSATION AND INCENTIVES MANAGEMENT: THEORETICAL APPROACH Ramunė Čiarnienė, Milita Vienažindienė Kaunas University of Technology, Vilnius Co-operative College For most people, pay is a primary reason for working. Indeed, compensation is at the core of any employment exchange, and it serves as a defining characteristic of any employment relationship. The study focuses on critical points of compensation and incentives management. The fundamentals of a good incentive program include the elements of vision, potential, communication and motivation and can be realized if incentive promises are fulfilled – by both employer and employee. The aim of the paper is to identify the most important attributes of compensation and incentives management. Research method is the analysis and synthesis of scientific literature, logical, comparative and graphic representation. On the base of analysis, authors of this paper present the model of incentive system for positive employee attitudes and behaviors. Keywords: compensation, employees, incentives, management. Introduction Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship. Pay may be received directly in the form of cash (e.g., wages, merit increases, incentives, cost of living adjustments) or indirectly through benefits and services (e. g., pensions, health insurance, paid time off). Programs that distribute compensation to employees...
Words: 2728 - Pages: 11
...Module -4 Compensation Management Acknowledgement I would like to express my deepest gratitude to our lecturer Mr: Dilshard Perera whose contribution in stimulating suggestions and encouragement helped me to coordinate this report. I would also like to acknowledge my team members for the advices and support given to me. My thanks also go to my classmates, who always encouraged and supported me. Finally I would like to express my special gratitude to my loving parents for encouraging and supporting me throughout my life. PQHRM/KDY/12 Page i Module -4 Compensation Management Table of Contents 1 Question 1 ..................................................................................................................... 1 2 Question 2. .................................................................................................................... 4 3 References .................................................................................................................... 9 PQHRM/KDY/12 Page ii Module -4 Compensation Management 1 Question 1 WHAT ARE THE MANAGEMENT ISSUES FACED BY THIS COMPANY? Inability to achieve the 40% of production rate. The company’s initial target was to achieve 40% or above increase in production. At the first 3 months they gradually reached up to 32%. There after it was dropped up to 20% during the latter three months. Increase of the lower quality products during the 6 months. The lower quality and rejects rate was increased...
Words: 1697 - Pages: 7
...Compensation Proposal Lori Berens Human Capital Management 531 November 14, 2010 Memorandum TO: Executive Management Team FROM: Lori Berens SUBJECT: Compensation Proposal Attached the management team will find the new compensation proposal that will be used for all current employees and new hires. After the merger between InterClean and Enviro Tech the management team requested that a new compensation proposal be created. The new compensation proposal will be effective January 1, 2011 upon approval from the executive management team. The new compensation plan for employees will consist of the employee’s base salary that will be determined by experience and education of each employee, the sales team will also receive commissions on his or her sales per month. The employees on the sales team will also be part of a sales incentive bonus program; this program will be a quarterly and is determined by the sales for each member on the sales team. If the employee meets or exceeds his or her sales goals for the quarter he or she will be eligible for the sales incentive bonus. The compensation plan also includes vacation time, company paid holidays, and personal time. The company gives two weeks vacation to all full-time employees, at five years the employee will have three weeks vacation and at 15 years the employee will have four weeks vacation. The company has seven paid holidays (New Years Day, Memorial Day, 4th of July, Labor Day, Thanksgiving Day and the Day after...
Words: 885 - Pages: 4
...INSTRUMENTS The Alliston instruments compensation system and strategy design and implementation, had a major negative aspect that they did not focus on specific performance objectives. The incentive program which Alliston have set for their employees did not have any objectives for their production and performance tasks. The purpose of their incentive plan was to focus and align the organization by communicating and rewarding the achievement of company goals. In my view, Alliston Instruments should have implemented a compensation mix strategy. It would have allowed them substantial portion of compensation to be allocated to short-term incentives and long-term equity incentive, i.e., percentage of pay allocated between base pay and short-term incentive and long-term equity incentive pay. The base salary of the employees should have based on external market data, internal equity value, and performance of the company and in the end an individual performance. In terms of short term incentive Plans Company should have criteria in which the overall performance of an employee should be measured on different tasks and should set up minimum performance targets. This way employee would work hard and will not compromise with the quality of the products. In return, the short term incentive plans varies company to company, however the minimum incentive plans generally comprises 10-20% of the base of total direct compensation. Based on my study I recommend that Alliston...
Words: 493 - Pages: 2
...What is compensation Management? Companies have a process, or procedure they use when deciding the terms of the compensation. Thus, compensation management is the act of distributing some type of monetary value to an employee for their work, by means of the company's policy or procedures. In basic terms, it is paying an employee based upon the decided pay and benefit package for the position. The goal of compensation management is to find quality people, who perform quality work, and then compensating them in order to retain them and reduce turnover rates. Some different types of compensation include, salary, overtime pay, commission, bonuses, and benefits packages that might include, health and dental insurance, vacation time, and retirement savings. Blue Flowers (Pvt.) Ltd Blue Flowers (Pvt.) Ltd is an 8 years old company engaged in manufacturing of high quality artificial flowers to the local and international market.it is situated in a remote area in Moneragala District, with a total workforce of 350.Its products are very well established in local and International outlets. The vision of the company is “To be a leading manufacturer of world class quality artificial flowers in South Asia by year 2015”. The company operates through functional departments, namely Purchasing Department, Production Department, Sales/Marketing Department, Accounts Department and HR Department. From last year onwards, they have been flowing with steady import orders. This trend can be anticipated...
Words: 1778 - Pages: 8
...project How is base pay adjusted over time? Cost of living adjustments Seniority pay, merit pay Incentive pay, person focused pay All of the above Extrinsic compensation includes? Base salaries and bonuses Jobs that provide autonomy Both monetary and nonmonetary rewards Traditional pay 4) Competency based can be defined as? Two basic types of focused pay programs, pay for knowledge and skill base pay Compensation for longevity Phased wage approach Retirement compensation 5) Pay for knowledge can be defined as? a) Rewards for managerial, service, or professional workers for successfully learning specific curricula b) Consultant fees c) Measures labor productivity 6) Skill-based pay defined is? a) Employees who work on computers b) A term used mostly for employees who do physical work c) Trade that deals mainly with the restaurants industry d) Skills considered supervisory 7) Incentive pay defined is? Augments employees base pay Appears as a one-time payment Employees usually receive a combination of recurring base pay and incentive pay All of the above 8) Incentive pay plans can be broadly classified into what 3 categories. a) Store sales, profit levels, customer quality b) Cost savings, reduction, services c) Individual incentive plans, group incentive plans, company wide plans d) Number of units produced, amount of sales, error rate 9) Individual incentive pay plans are most appropriate under what 3 conditions? a) Where employee’s performance can...
Words: 451 - Pages: 2
...Importance of HRM Issue 1.When we talk about organizaiton’s management, we cannot ignore the compensation management of HR department. The compensation is directly impact on organization’s budget and employ’s performance. 2.First the first aspect, we all know that organization’s pay level is based on the organization’s goal, market dara, legal requirements and principal fairness. (Noe, Hollenvech, Gerhart, Wright, 2011, p363). Because capital is limited, organization’s HR department often makes the upper limit. However they still want to abstract talent to perform best (work performance management), so there is a balance to keep on the pay level. 3.“Compensation satisfactory degree is a relative concept refers that the employees are to improve the motivation and source of economic progress based on the enterprise, they have occupied absolute proportion in total capital” (Michael Armstong&Helen Murlis2000). 4.Some staff's work enthusiasm is not high. Some employees lack the sense of belonging to a company, resulting in the loss of passion. So companies attach great importance to this problem. To establish a good working relationship, provide the appropriate level of compensation is an important aspect(Kenan S．Abosch and Janice S．Hand，1 998). .“Satisfied or not is one of people’s mood and emotional reactions, from the point of equity in compensation, when determining whether satisfied or not for people, people tend to compared with reference, if people feel input and...
Words: 405 - Pages: 2
...December 6, 2012 Incentive Pay This topic was picked as a local health organization is going to be implementing this for their employees in the 2014 fiscal year. They have decided after many years of debate to finally make the decision to include this when they do annual reviews to determine if the employee will receive an additional pay raise over the normal market percentage that they receive on a yearly basis. This is a new device that employers are beginning to use to coax employees to do more in their everyday functions than just what is required of them by their employer. There are several steps to implementing a successful incentive compensation program. The six steps mentioned here that are worth exploring further to make sure the process goes accordingly to help the organization to reach their goal of more revenue, increased patient satisfaction and increased motivation from employees. The process was written by D. Kevin Berchelmann of Triangle Performance LLC. 1. Determine what the plan intends to accomplish-Identify in detail what the desired conditions should be and the reasonable behaviors necessary to achieve them. It’s important to make sure that the organization analyzes the appropriateness for the environment for which the plan will be implemented and to make sure that the plan clearly states what it is that the organization wants, be specific as possible. 2. Determine Participants- Every employee is key component to making the plan...
Words: 3633 - Pages: 15
...Research Wiki Cleary Library Blog NoodleTools APA Guide Academic Policies eCleary Essentials eCleary Student Guide Support eCleary FAQ Welcome Contacts Resources HW 4 Review of attempt 1 ------------------------------------------------- Top of Form Bottom of Form Started on | Sunday, 5 February 2012, 09:19 PM | Completed on | Sunday, 5 February 2012, 09:58 PM | Time taken | 38 mins 15 secs | Marks | 13/20 | Grade | 6.5 out of a maximum of 10 (65%) | Question 1 Marks: 1 A compensation program that includes all performance indicators that influence an employee's output is called the: Choose one answer. | a. informativeness principle. | | | b. incentive coefficient. | | | c. risk-sharing premium. | | | d. efficient bargaining solution. | | Correct Marks for this submission: 1/1. Question 2 Marks: 1 An efficient allocation of risk among employees and owners must: Choose one answer. | a. take into account that performance-based incentives are the sole important component of an employee's salary. | | | b. take into account that...
Words: 1352 - Pages: 6
...HRM 430 Compensation & Benefits Devry University Compensation Definition Compensation is defined as the amount of total monetary and non-monetary pay to an employee from an employer in return for work performed as directed in the job description (Heathfield). Compensation can also be thought of as direct financial compensation, indirect financial compensation, and non-financial compensation. Compensation is the reason why millions of people go to work every day. Some forms of monetary compensation can include payments such as profit sharing, bonuses, overtime pay, sales commissions, and checks. Then there are the forms of non-monetary compensation that could include things like a company-car or a company-paid house. For example, in the military we have company-paid housing. Some people might not think of the military as a company but many companies have modeled their staffing just like ours and we have forms of monetary and non-monetary compensation as well. Overview of Compensation Philosophy A good compensation philosophy shows an employers’ commitment to how much it values its employees. It gives employees something to reference when talking about pay during any type of negotiations. Its purpose is to attract the best candidates and to motive and retain its current employees. In order to ensure that a company can attract, retain, and motivate its employees it compensation plan must contain the following components: base pay, incentive pay, and benefits...
Words: 621 - Pages: 3
...EMPIRICAL RESEARCH When do incentives work in channels of distribution? David I. Gilliland & Stephen K. Kim Received: 31 December 2012 / Accepted: 1 November 2013 / Published online: 7 December 2013 # Academy of Marketing Science 2013 D. I. Gilliland Aston University, Birmingham, UK B47ET incentive offers because monetary rewards offset the agent’s risk and unpredictability of its income stream (Jensen and Meckling 1976). Despite general support for this logic, researchers have been puzzled by a substantive dilemma: Incentives often do not work. Benabou and Tirole (2003); Bouillon et al. (2006), and others have found that agents do not always respond positively as incentives increase. Other findings indicate that monetary incentives are sometimes demotivational (Ryan and Deci 2000), lead to dysfunctional activities by rewarding the wrong behavior (Baker 2002; Oyer 1998), are an inefficient control mechanism (Akerlof and Kranton 2005), promote shirking rather than compliance (Gibbons 1998), and are unpredictable under turbulent industry conditions (Prendergast 1999). The idea that incentives often do not work has been substantiated in the practitioner literature as well. Kesmodel (2008) reports in the Wall Street Journal that even dominant firms find it difficult to structure effective incentive portfolios with the resellers of their products. These and other findings motivate our research question: When do incentives work in a channels of distribution ...
Words: 8849 - Pages: 36
...bonus of 2.9 million dollars. Mike Duke’s Salary along with stocks valued were about 3% greater than the year previous and his bonus was about 25% less. When the company cannot meet there goals Mike Duke doesn’t get the full bonus at the end of the year. His total compensation for the year was totaling around 18.1 Million dollars which would put him as the 82nd highest paid CEO in the United States, according to Forbes magazine. Mike Duke compensation was measured for setting his incentive pay. Wal-Mart always used the metric common which would be same store sales, meaning that the volume of the store and has it been open for a year or more. By looking closer to the sales of each store and determining if the activities were making the store greater. However, Mike Duke incentive pay was total sales for the entire company. However, this changed came when Mike Duke had been seen that the store sales had only been decreasing instead of increasing. Same – store sales which totaled all sales in the basis for incentive pay changed with in the performance at which were set to reach. Once the company switched the performance measures, Wal-Mart executives had to meet goals from three year prior just to receive the incentive bonus. (McGraw-Hill, 2014)...
Words: 927 - Pages: 4
...Person-focused pay plans rewards employees for acquiring job-related competencies, knowledge, and skills. There are two types of competency-based pay programs such as pay-for-knowledge pay and skill-based pay. Incentive pay is defined as compensation, which varies according to a pre-established formula, individual or group goals, and company earnings. Incentive pay adds to base pay as a one-time payment. It is designed to control costs and motivate employee productivity. Body A person-focused pay programs can provide job enrichment and job security to employees. Through job enrichment, it creates a more basic way of motivating employees and an exciting work environment. This can also increase employees' flexibility. According to the job characteristics theory, employees will be motivated to perform jobs that contain a high degree of four core characteristics: skill variety, task identity, autonomy, and feedback. There are some factors that individual incentives need to have which include: incentives include quantity of work output, quality of work output, monthly sales, work safety record, and work attendance. There are four types of individual incentive plans. Piecework plans which reward workers for every item produced over a designated production standard. Management incentive plans award bonuses to managers when they meet or exceed objectives based on sales, profit, production, or other measures for their division. Behavioral encouragement plans award employees for specific...
Words: 304 - Pages: 2
