ShortTerm Incentives l Those additions to base pay

Short-Term Incentives l Those additions to base pay provided to employees within the current year. 1

Short-Term Incentives l In reviewing opportunities for granting short-term incentives, employees must be viewed from four different perspectives: • Individual contributors • Team members • Work units • Organization members 2

Premiums & Differentials Defined and Proscribed By: l Wage l Pay and Hour Laws Policy and Procedures l Union Contracts l Industry Practices 3

Premiums & Differentials l Overtime Pay l Standby l Shift Differential l Cleanup Time l Weekend l Burdensome l Holiday Work l Distasteful l Call-back l l Reporting Hazardous Work 4

Pay-For-Units-Produced l l l The oldest of all incentive programs. It was sophisticated in the scientific management theories of Frederick Taylor in the late 19 th century. The basic three S’s of workplace efficiency programs are: u. Standardize - Simplify Specialize 5

Pay-For-Units-Produced l The three building blocks that provide the foundation for many pay -for-units-produced incentive plans are: u. Establishing the time required…. . u. Determining what should be considered an acceptable level of performance…. . . u. Establishing an acceptable level of pay…. 6

Team Incentive Plans l Most of the various kinds of individual incentive plans described in our text can be used in rewarding the efforts and contributions of teams. 7

Aggregating Employees For Incentive Opportunities l It is not unusual for executives to receive short-term bonuses equal to 50% of base pay and for other senior managers to receive bonuses equaling 25% to 50% of base pay. l While short-term incentive programs have descended through the management structure, the major recipients continue to be the senior managers. 8

Aggregating Employees For Incentive Opportunities The size of the bonus pool from which management short-term incentives are taken is normally determined by some form of profit measurement. 9

Aggregating Employees For Incentive Opportunities The measures used will vary by organization and they are normally formula driven plans with one or more of the following characteristics: l Profit Before Taxes l Profit After Taxes l Return On Equity l Return On Invested Capital 10

Aggregating Employees For Incentive Opportunities l The amount of the bonus is normally established as a percentage of base pay. 11

Organization-Wide Short-Term Incentives l Productivity Gain Sharing Plans u. This is basically a sharing by the organization with employees of "bottomline" improvements obtained through increased productivity. u. A first requirement for a gain sharing plan is determination of a standard measure of performance. 12

Scanlon Plan l Scanlon's philosophy was that if the company would foster and use employee ideas and suggestions and, in turn, reward employees for their constructive efforts, the company would improve profitability and workers would gain through steady employment and increased pay. 13

Scanlon Plan l The Basic Elements of the Scanlon Plan are: u. The Ratio Total labor cost / sales value of production. u. The Bonus Depends on the reduction in costs below the preset ratio. 14

Scanlon Plan l The Production Committee Formed in each major department and is used to tap into the imagination and ingenuity of the workers. 15

Scanlon Plan l The Screening Committee u. Consists of top members of the plant management and workers representatives, usually eight to twelve members. u. It reviews the monthly bonus, discusses current production problems, and considers all suggestions for organizational improvement. 16

Profit Sharing l Any procedure under which an employer pays or makes available to regular employees, (subject to reasonable eligibility rules) in addition to prevailing rates of pay, special current or deferred sums based on the profits of business. 17

Profit Sharing l There are essentially three different types of profit sharing plans in existence today u. Cash or current payment plan u. Deferred plan (pension support) u. Combined plan 18

Lincoln's Incentive System l The company guarantees 30 hours of work 50 weeks a year to each employee who has a least 3 years of service. l Standard job evaluation procedures set the base wage, using six compensable factors to determine the importance of each job. 19

Lincoln's Incentive System l The majority of workers are on a piecework incentive plan. l All employees may participate in the suggestion program with the exception of department heads and members of the engineering and time-study departments. 20

Lincoln's Incentive System l Twice a year, a merit rating program appraises the actual work performance of each employee. l After the first year of service, each employee annually has the opportunity to purchase a limited number of shares of company stock. (Currently, about 75% of the employees own 40% of the stock) 21

Lincoln's Incentive System l Employees elect representatives to an "advisory board". The board has the opportunity to suggest changes in policies and operations. l The annual cash bonus earned by the employees closely approximates their annual earnings. 22

Lincoln's Incentive System l Independent work groups or "subcontractor shop" operations, perform their own quality control and develop their own production procedures in completing subassembly operations within given cost, quantity, and quality parameters. 23

Lincoln's Incentive System l All profits of the business are split three ways: u. The corporation retains a share for capital improvement and financial security. u. Shareholders receive approximately 6% to 8% dividends. u. Employees receive all remaining profits. 24

Timing Of Bonus Payments l Christmas Bonus l Vacation Bonus l Annual Lump-sum Bonuses 25