Compare and contrast six types of incentive plans. Various types of incentive plans werepresented in the text, including piecework plans, straight and guaranteed plans, standardhour plans, plans for salespersons (commissions and combination plans), and groupincentive plans. With the piecework plans, earnings are tied directly to what the individualworker produces, and are more appropriate in a manufacturing organization. Commissionsare more appropriate for salespeople in situations where they are largely unsupervised.
Ingroup incentive plans like the Scanlon Plan, all workers involved in developing andimplementing cost savings share in the benefits of the suggestions. (Pages 440-460) 2. Explain five reasons why incentive plans fail. When incentive plans fail, it can be for avariety of reasons like: employees do not believe that effort will obtain the reward, badmanagement overrides the plan, rewards tied to the wrong measures, plan is complicatedand difficult for employees to understand, or standards are too high or too low. See the liston page 462 for more reasons and details.
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Pages 461-463) 3. Describe the nature of some important management incentives .
Two widely usedmanagement incentive plans are merit pay and profit sharing plans. Merit pay is any salaryincrease that is awarded to an employee on his or her individual performance. Advocatesargue that only pay tied directly to performance can motivate improved performance. Profitsharing plans distribute a portion of the company’s profits to employees in the form of abonus. Research shows that benefits are more subtle than increased productivity—possiblyin the form of better worker commitment.
There are additional management incentive plansstudents might cover, including long-term incentives such as capital accumulation plans,various alternative stock plans, and performance plans. (Pages 443-449) 4. When and why would you pay a salesperson a salary and commission combined? Salary plans work well when your objective is prospecting work or where the salesperson isprimarily involved in account servicing. They are often found in industries that sell technicalproducts. A commission plan is appropriate when sales costs are roportional to sales.
Thiscan reduce the selling investment for fixed costs. The straight commission also providessalespeople with the greatest possible incentive and there is a tendency to attract high-performing people. Combination plans are used when the firm wants to direct itssalespeople’s activities by detailing what services the salary component is being paid for while the commission component provides a built-in incentive. (pages 451-452) 5. What is merit pay? Do you think it’s a good idea to award employees merit raises? Why or why not?
Merit pay is a salary increase that is awarded to an employee based onhis or her individual performance. It is a good idea to award merit raises when you have agood performance appraisal system and employees’ individual effort can be fairly andaccurately evaluated or measured. (pages 452-454) 6. In this chapter we listed a number of reasons experts give for not instituting a pay-for-performance plan (such as “rewards punish”). Do you think these points (or any of them) are valid? Why or why not? All of these reasons are, or can be, valid.
There will 99 Human Resource Management, 8/e also be organizational situations where one or more of them will not be valid. Studentsshould describe situations in which the reason is (or is not) valid. (page 462) 7. What is a Scanlon plan? Based on what you’ve read in this book so far, what featuresof a commitment-building program does the Scanlon plan include? This is an incentiveplan that was developed in 1937 by Joseph Scanlon. It includes features such as aphilosophy of cooperation, identity, competence, involvement, and sharing of benefits.
Allthese are features of a commitment-building program. The Scanlon plan is actually an earlyversion of what today is known as a gain sharing plan. (Pages 457-458) 8. Suppose your instructor decided to award final grades to teams of students in thisclass, instead of to individuals. What would be the pros and cons of such anapproach? Would you like the idea? This is a good question for students to be able tostep out of the idealism they sometimes have about concepts and into the reality that theconcepts create.
This approach would encourage students to work together (which is animportant skill they need to have as they go into the working world), and to learn from eachother. The negatives include the dependence on the quality of their teammates and the lackof individual accountability. Individual and Group Activities: 1. Working individually or in groups, develop an incentive plan for the followingpositions: chemical engineer, plant manager, used-car salesperson. What factors didyou have to consider in reaching your conclusions?
I would give the chemical engineer a merit raise system because he or she has little perceived control or impact over theproduction or profitability of the company. The plant manager should receive an annualbonus tied to the profitability of the plant, as well as a stock option plan to encourage long-term planning as well. The used-car salesperson would likely receive a straight commissionplan because sales are more directly dependent on his or her ability to sell those cars toprospective customers. 2.
A state university system in the southeast recently instituted a “Teacher IncentiveProgram” (TIP) for its faculty. Basically, faculty committees within each universitycollege were told to award $5,000 raises (not bonuses) to about 40% of their facultymembers based on how good a job they did teaching undergraduates and how manythey taught per year. What are the potential advantages and pitfalls of such anincentive program? How well do you think it was accepted by the faculty? Do youthink it had the desired effect? This program would put a premium on undergraduateteaching as opposed to research or graduate teaching.
If it were to work, the best teacherswould be motivated to teach at the undergraduate level in order to increase their earnings. The pitfalls are many. Some research or graduate faculty may actually make more throughconsulting or other outside means, thus they will not be motivated by this system. If researchis important to this organization, or the graduate programs are vital, this program coulddamage those programs. The awarding of the moneys is likely to be inconsistent becausespecific guidelines have not been spelled out. More likely, the rewarding of the raises may