Compensation and incentive plan

1. Compensation and Incentive Plan

2. Introduction
 The term COMPENSATION mean to give something
in return of performance .It include wages, salaries
and incentive
 Compensation is a systematic approach to providing
monetary and non monetary value to employees/staff
in exchange for work performed
 Compensation may be defined as money recieved in
performance of work and many kinds of benefits that
an organisation/institution provides to their
employees/staff

3. Incentives
 The term INCENTIVE mean,something which
encourage a person to do something or the ”extra
financial reward /motivation“
 Incentive is a performance link reward to improve
motivation and productivity of the employees/staff.

4. Objectives of Compensation/Incentive Plan
 To recruit and retain qualified employees.
 To increase or maintain morale.
 To reward for job performance
 Increase in productivity.
 Reduction in labor cost.
 Improvement in effeciency.
 Rise in work’s earning
 Higher employee motivation
 Greater contribution to organizational effectiveness.
 Encouraging employees to acheive specific
organizational goals

5. Why Should You Have
Compensation/incentive program?
 Good business sense:
 Compensation is one of you largest signal costs of doing business
 Attract,retain and engage talent you already have in organization
 Support the desired mission,strategy and culture of the
organization
 Can ensure equity and fairness among employees/staff:
 Improves employees/staff morale
 Can reduce job turnover
 The perfect compensation plan provides a plattform for
happy satisfied workforce .The organisation or institution
enjoy stability.

6. Cont….
 Workers are likely to work at their best when they
offered monetary reward for their performance.
 To bring employee involvement to make
employee/staff innovative.
 Incentives are sound techniques of improving
productivity.
 Help to improve discipline
 To obtain desired result from staff or employees

7. View of Compensation/incentive
Managers’View Employee View
 Major expense
 Means to influence
employee’s behavior
 To improve the organization
performance
 Return in an exchange with
their employer an entitlement
or a reward.
 Major source of financial
security.
 Entitlement of being an
employee of a company
 Reward for a welldone job.

8. Classification of incentive/compensation plans
individual
• Time-based
• Output-
based
• Bonuses
• Merit pay
organization
• Profit
sharing
• Co-
partnership
• Gain-
sharing
group
• Time based
Incentive plan

9. Individual incentive plan
 Individaul plan based on:
 Merit pay
 Bonuses
 Lump-sum payment
 Advantages:
 Financial incentives can shape individual goals
 Help firm to acheive individual equity
 Disadvantages:
 May promote single mindness

10. Group /team incentive plan
 Group based plan attempt to support other efforts to
increase the flexibility of the work force with in firm
 Advantages:
 Foster group cohesiveness
 Facilitate perfofmance measurement.
 Disadvantages :
 Difficulties in indentifying meaningful group.
 Inter- group competition leading to a decline in overall
performance.
 Possible lack of fit with individualistic cultural values.

11. Developing Successful incentive
plan
Develop clear,understandable plan that are
continually communicated
• Use realistic performance measures
Keep plans linked to the organizational
objectives
• Identify variable pay incentives seperately
from base pay
Successful
incentive
plan

12. What makes an incentives/compensation plan
effective?
 In the absence of mutual trust between management and
workers ,an incentive may be viewed as an attempt to improve
production/profit only.
 Payment of incentive should be fee from bias and established
through proper work study.
 To implement incentives plane effectively minimum wages
should be guarranted to every workers.
 It should be easy to understand and simple to operate so that
employee can calculate their own earning.
 It should provide equal opportunity to all workers to earn
incentives pay.
 It should be adequate to motivate each employees.
 Plan should be flexible to adopt any change later on.

13. Model of effective incentive plan
 n
SUCCESS:
•Incentive promises are
fulfilled-by both
employer and employee
•Compensation plan
match economic
situation
FAILURE:
•Not effective communication
•A sense of insecurity in employee
•Incentive plan are incomplete
•Compensation is not treated as an
investment;treated as expense.
•Incentive plan remain unchanged
for a long period of time
INCENTIVE
SYSTEM
Positive impact
Negative impact
EMPLOYEE ATTITUDES AND BEHAVIOUR

14. Conclusion
 The basic purpose of compensation and incentive
plans is encourage the employees performance and
motivate them to focus on the success of the
organization as whole.

16. References
 Source: Boundless. “Non-Monetary Employee
Compensation.” Boundless Management. Boundless,
08 Dec. 2014. Retrieved 12 May. 2015
from https://www.boundless.com/management/textb
ooks/boundless-management-
textbook/organizational-behavior-5/compensation-
and-motivation-50/non-monetary-employee-
compensation-254-7976/
 http://www.businessdictionary.com/definition/mone
tary-reward.html#ixzz3ZucVQzSY