A9 - Aligning Strat., Talent, and Rewards: Pay-for-Perf. Plans Flashcards

Question

types of indiv. incentive plans ## Footnote ***_Standard Hour Plan_***

Answer 1

* ***_based on time per unit and tie incentives directly to level of output_*** * rate determination is ***_based on time period per unit of prod._*** and wages vary directly as a constant function of product level. * ***_incentive rate is set based on completion of a task in some expected time period_*** * more practical than straight piecework plans for ***_long-cycle ops and jobs that are nonrepetitive and require numerous skills for completion_***

Answer 2

* provides variation on straight piecework and standard hr plans * ***_instead of timing an entire task, a Bedeaux plan requires determination of the time req'd to complete each simple action of a task_*** * ***_workers receive a wage incentive for completing a task in less than the standard time_***

Answer 3

* ***_provides for variable incentives as a function of units of prod. per time period_*** * ***_provides 2 piecework rates that are estab'd for prod. above and below standard_*** * rates are higher and lower than the reg. wage incentive level

Answer 4

* ***_indiv. incentive plan that provides for variable incentives as a function of units of prod. per time period_*** * like the Taylor plan, but ***_three piecework rates are set_*** * High - for prod. exceeding 100% of standard * Medium - for prod. b/w 83 and 100% of standard * Low - for prod. less than 83% of standard

Answer 5

* ***_provides for variable incentives linked to a standard expressed as time period per unit of prod._*** * derives its name from the ***_shared split b/w worker and ER of any savings in direct costs_*** * ***_the savings from completion of a task in less than the standard time are allocated 50-50 b/w the worker and company_*** * an allowed time for a task is determined via time study

Answer 6

* similar to Halsey plan * ***_provides for variable incentives linked to a standard expressed as time period per unit of prod._*** * ***_a worker's bonus increases as the time req'd to complete the task decreases_***

Answer 7

* ***_provides for variable incentives linked to a standard expressed as time period per unit of prod._*** * ***_standard time for a task is purposely set at a level requiring high effort to complete_*** * any worker that ***_fails_*** to complete the task in the standard time is ***_still guaranteed a presetab'd wage_*** * ***_if task is completed in standard time or less, earnings are pegged at 120% of the time saved_*** * earnings incr. faster than prod. whenever standard time is met or exceeded

Answer 8

* substantial impact that raises productivity, lowers prod. costs, and incr. earnings of workers * ***_less direct supervision_*** is req'd to maintain reasonable levels of output than under pmt by time * in most cases, systems of pmt by results, if accompanied by improved org. and work measurement, enable labor costs to be estimated more accurately than under pmt by time * helps costing and budgetary control

Answer 9

* greater conflict may emerge b/w EEs seeking to maximize output and mgrs concerned about deteriorating quality levels * attempts to introduce new tech. may be resisted by EEs concerned about the impact on prod. standards * reduced willingness of EEs to suggest new prod. methods for fear of subsequent incr. in prod. standards * incr'd complaints that equipment is poorly maintained, hindering EE efforts to earn larger incentives * incr'd turnover among new EEs discouraged by the unwillingness of experienced workers to cooperate in OTJ training * elevated levels of mistrust b/w workers and mgmt

Answer 10

* ***_start focusing on ppl working together_*** * incentive plans that are ***_based on some measure of group perf_***. rather than indiv. perf. * ***_standard is set against which team perf. is compared to determine the magnitude of the incentive pay_*** * there is interest in this, but ***_studies find that most companies are not satisfied w/ the way their team comp systems work_***

Answer 11

* F/T teams; P/T teams; temporary teams; teams across functions * ***_hard to argue that there is a consistent type of comp plan._***

Answer 12

* ***_if teams are defined at a very broad level, the motivational impact of incentives can be lost_*** * ***_thinking that your effort won't be noticed if you are part of a big team with broad incentives_*** * ***_small work teams tend to show behaviors that are clearly unhealthy for overall corp. success due to competition_*** * they hoard stars, afraid to waste time taking on new team members b/c of training it would take * awards cause bickering among the teams members b/c it is difficult to equalize for difficutly when assigning rewards

Answer 13

1. complexity 2. control 3. communication

Answer 14

* productivity improvements * cust. satisfaction * financial perf. * quality of goods and services * huge range of options for different types of corp. objs.

Answer 15

* ***_cash profit sharing_*** * ***_stk ownership or options_*** * ***_balanced scorecard_*** * ***_productivity/gain sharing_*** * ***_team/group incentives_***

Answer 16

* ***_award based on org. profitability_*** * ***_shares a %age of profits (above a target level of profitability)_*** * ***_usually an annual payout_*** * ***_can be cash or deferred 401K_*** * ***_ADV:_*** * ***_simple, easily understood_*** * ***_low admin costs_*** * ***_DISADV:_*** * ***_profit influenced by many factors beyond EE control_*** * ***_may be viewed as an entitlement_*** * ***_limited motivational impact_*** * ***_Why?_*** * ***_to educ. EEs about bus. ops_*** * ***_to foster teamwork or "one-for-all" environ._***

Answer 17

* ***_award stk shares or options_*** * ***_ADV:_*** * option awards have minimal impact on the fin. stmts of the company at the time they are granted * ***_if properly communicated, can have powerful impact on EE behavior_*** * ***_tax deferral to EE_*** * communicates org. priorities * ***_DISADV:_*** * ***_indirect pay/perf. link_*** * ***_EEs may be req'd to put up money to exercise grants_*** * ***_Why?_*** * ***_to recruit top-quality EEs when org. has highly uncertain future or biotech_*** * ***_to address EE retention concerns_***

Answer 18

* ***_awards that combine fin. and operating measures for org., bus unit, and/or indiv. perf._*** * ***_award pool based on achieving perf. targets_*** * ***_multiple perf. measures: nonfin/operating or fin._*** * ***_ADV:_*** * ***_communicates org. priorities_*** * ***_DISADV:_*** * ***_perf. critiera may be met, but if fin. targets are not met, there may be a reduced payout or no payout at all_*** * ***_can be complex_*** * ***_Why?_*** * ***_to focus EEs on need to incr. s/h value_*** * ***_to focus EEs on org, division, and/or indiv. goals_*** * ***_to link payouts to a specific fin. and/or operational target_***

Answer 19

* ***_awards that share econ. benefits of improved productivity, quality, or other measurable results_*** * ***_focus on group, plant, dept, or division results_*** * ***_designed to capitalize on untapped knowledge of EEs_*** * ***_ADV:_*** * ***_clear perf-reward links_*** * ***_productivity and quality improvements_*** * ***_EE's knowledge of bus. incrs._*** * ***_fosters teamwork, cooperation_*** * ***_DISADV:_*** * ***_can be administratvely complicated_*** * ***_unintended effects, like decrease in quality_*** * ***_mgmt must "open the books"_*** * ***_payouts can occur even if company's fin. perf. is poor_*** * ***_Why?_*** * ***_to support a major productivity/quality initiative_*** * ***_to foster teamwork environ._*** * ***_to reward EEs for improvements in activities that they control_***

Answer 20

* ***_awards determined based on team/group perf. goals or objs._*** * ***_payout can be more frequent than annual and can also extend beyond the life of the team_*** * ***_payout may be uniform for team/group members_*** * ***_ADV:_*** * ***_reinforces teamwork and team ID/results_*** * ***_effective in stimulating ideas and prob-solving_*** * ***_minimizes distinctions b/w team members_*** * ***_may better reflect how work is performed_*** * ***_DISADV_*** * ***_may be difficult to isolate impact of team_*** * ***_not all EEs can be placed on a team_*** * ***_can be administratively complex_*** * ***_may create team competition_*** * ***_difficult to set equitable targets for all teams_*** * ***_Why?_*** * ***_to demonstrate an org. commitment to teams_*** * ***_to reinforce the need for EEs to work together to achieve results_***

Answer 21

* Indiv - win "productivity" medal * group - often right for specific situations where team coordination is the issue.

Answer 22

* ***_Indiv:_*** * ***_good measures of indiv. perf. exist_*** * ***_task accomplishment not dependent on perf. of others_*** * ***_Group:_*** * ***_output is group collaborative effort_*** * ***_indiv. contribs to output cannot be assessed_***

Answer 23

* ***_Indiv:_*** * ***_indiv. perf. standards are stable_*** * ***_prod. methods and labor mix relatively constant_*** * ***_Group:_*** * ***_perf. standards for indivs. chg to meet environ. pressures of relatively constant org. objs. _*** * ***_prod. methods and labor mix must adapt to meet changing pressures_***

Answer 24

* ***_Indiv:_*** * ***_commitment strongest to indiv.'s profession or superior_*** * ***_super viewed as unbaised and perf. standards readily apparent_*** * ***_Group:_*** * ***_high commitment to org. built upon sound communication of org. objs. and perf. standards_***

Answer 25

* Indiv: * nonunion; unions promote equal treatment * competition b/w indivs. inhibits "fraternal" spirit * Group: * union or nonunion; unions less opposed to plans that foster cohesiveness of bargaining unit and which distribute rewards evenly across group

Answer 26

* ***_gain-sharing plans: use operating measures to guage perf._*** * ***_profit-sharing plans: use financial measures_***

Answer 27

* use operating measures to gauge perf. * ***_common component for team-based comp. _*** * ***_EEs share in gains_*** * looks at cost components of the income ledger and IDs savings over which EEs have more impact (***_operational_***) * ***_key elements of design:_*** * _***strength of reinforcement* - what role should base pay assume relative to incentive pay? **_ * _***productivity standards: * what standard will be used to calc. whether EEs will receive an incentive payout? usually historical standards involving choice of a prior year's perf. to use for comparison w/ current perf. **_ * **_*sharing the gains split b/w mgmt and workers -* must address the relative cuts b/w mgmt and workers of any profit or savings generated_** * **_*scope of the formula -* can vary in the scope of inclusions for both the labor inputs in the numerator and the productivity outcomes in the denominator_**

Answer 28

* ***_strength of reinforcement _*** * what role should base pay assume relative to incentive pay? * ***_productivity standards_*** * what standard will be used to calc. whether EEs will recieve an incentive payout? * usually historical standards involving choice of a prior year's perf. to use for comparison w/ current perf. * must address the relative cuts b/w mgmt and workers of any profit or savings generated * ***_sharing the gains split b/w mgmt and workers_*** * part of the plan must address the relative cuts b/w mgmt and workers of any profit or savings generated * ***_Scope of the formula_*** * can vary in the scope of inclusions for both the labor inputs in the numerator and the productivity outcomes in the denominator * ***_Great care must be exercised w/ such alt. measures_*** * must ensure that behaviors reinforced actually affect the bottom line * best to encourage coorperative planning behaviors that result in more efficient work * ***_perceived fairness of the formula_*** * let EEs vote on whether implementation should go forward * ***_ease of admin_*** * incr'd complexities also require more effective communications and higher levels of trust among participants * ***_production variability_*** * one major prob is not setting targets properly which is usually due to the variability of the environ

Answer 29

* Scanlon Plan * Input - payroll costs * output - net sales (plus or minus inventories) * Rucker Plan * Input - labor cost * output - value added * Improshare * Input - actual hrs worked * output - total standard value hrs

Answer 30

* INPUT - payroll costs * OUTPUT - Net Sales ( + or - inventories) * ***_designed to lower labor costs w/o lowering the level of a firm's activity_*** * ***_incentives are derived as a function of the ratio b/w labor costs and sales value of prod (SVOP)_*** * SVOP includes sales rev and the value of goods in inventory

Answer 31

* cost reductions due to EE efforts are shared w/ the EEs * it involves a somewhat ***_more complex formula than a Scanlon plan_*** for deterimning EE incentive bonuses * ***_a ratio is calc'd that expresses the value of prod. req'd for each $ of total wage bill_***

Answer 32

***_(2) major components:_*** * ***_productivity norm_*** * ***_requires effective measurement of base-yr data_*** * ***_requires acceptance by workers and mgmt of this standard for calc'g bonus incentives_*** * ***_effective worker committees_*** * ***_evaluate EE and mgmt suggestions for ways to improve productivity and/or cut costs_***

Answer 33

* ***_Differences:_*** * ***Rucker plans tie incentives to a wide variety of savings, not just the labor savings focused on in Scanlon plans*** * ***greater flexibility may help explain why Rucker plans are more amenable to linkages w/ indiv. incentive plans*** * ***_Similarities:_*** * ***both focus attention on org. behavior variables*** * ***key is to promote faster, more intelligent, and more accepetable decisions through participation***

Answer 34

* ***_Improved Productivity through Sharing_*** * ***_a standard is developed to ID the expected hrs req'd to produce an acceptable level of output_*** * standard comes from either time-and-motion studies or base-period measurement * ***_any savings arising from prod. of agreed-upon output in fewer-than-expected hrs are shared by the firm and the workers_***

Answer 35

* ***_plan that focuses on profitability as the standard for group incentive_*** * ***_(3) types of distribs._*** * ***_cash or current distrib._*** - provide full pmt to participants soon after profits have been determined (quarterly or annually) * ***_deferred plans_*** - have portion of current profits credited to EE accts, w/ cash pmts made at time of retirement, disability, severance, or death * ***_combo plans_*** - incorporate aspects of both current and deferred options

Answer 36

* basically - Risk Sharing plans * any incentive plan could be an at-risk plan * ***_base pay is reduced by some amt relative if it is a bad year for company_*** * ***_shift risk of doing bus. from the company to the EE which can result in higher turnover for EEs that don't want to be part of that. _*** * ***_ESOPs_***

Answer 37

* ***_positive impact on org. and indiv. perf._*** of about 5 to 10% per year * ***_easier to develop perf. measures than it is for indiv. plans_*** * ***_signals that cooperation, both w/in and across groups, is a desired behavior_*** * ***_teamwork meets w/ enthusiastic support from most EEs_*** * ***_may incr. participation of EEs in decision-making process_***

Answer 38

* ***_line-of-sight may be lessened_*** * EEs may find it more difficult to see how their indiv. perf. affects their incentive payouts * ***_May lead to incr'd turnover among top indiv. performers who are discouraged b/c they must share w/ lesser contribs. _*** * ***_increases comp. risk to EEs b/c of lower income stability_*** * ***_may influence some apps to seek jobs in firms where base pay is a larger comp. component_***

Answer 39

* inducements offered in advance to influence longer-rate (multiyr) results * ***_usually offered to top mgrs and profs. to get them to focus on L/T org. objs._*** * ***_focus on perf. beyond the 1-yr_*** time line used for S/T plans

Answer 40

* ***_Level One: Low Risk/Reward_*** * ***_Time-based restricted stk_*** * ***_perf.-accelerated restricted stk_*** * ***_stk purch. plan_*** * ***_Level Two: Medium Risk/Reward_*** * ***_time-vested stk option_*** * ***_perf-vested restricted stk_*** * ***_perf-accelerated stk option_*** * ***_Level Three: High Risk/Reward_*** * ***_premium-priced stk option_*** * ***_indexed stk option_*** * ***_perf.-vested stk option_***

Answer 41

* ***_Level 1: low risk/reward_*** * ***_an award of shares that actually are received only after the completion of a predefined service period_*** * ***_EEs who term. employment b4 the restriction lapses must return their shares to the company_***

Answer 42

* ***_Level 1: Low Risk/Reward_*** * ***_restricted stk granted only after attainment of specified perf. objs._***

Answer 43

* ***_Level 1: Low Risk/REward_*** * ***_opportunity to buy shares of company stk either at prices below mkt price or w/ favorable financing_***

Answer 44

* ***_Level 2: Medium risk/reward_*** * ***_most stk options_*** * ***_the right to purch. stk at a specified price for a fixed time period_***

Answer 45

* ***_Level 2: Medium Risk/Reward_*** * ***_this is a grant of stk to EEs upon attainment of defined perf. objs._***

Answer 46

* ***_Level 2: Medium Risk/Reward_*** * ***_an option w/ a vesting schedule that can be shortened if specific perf. criteria are met_***

Answer 47

* ***_Level 3: High Risk/Reward_*** * stk option that has an ***_exercise price about MV_*** at the time of grant * creates an incentive for EEs to create value for the company, see the stk price rise, and thus be eligible to purch. the stk

Answer 48

* ***_Level 3: High Risk/Reward_*** * option whose exercise ***_price depends on what peer companies'_*** experiences are w/ stk prices * if industry stk prices are generally rising, it would be difficult to attribute any similar rise in specific improvements beyond general industry improvement

Answer 49

* ***_Level 3: High Risk/Reward_*** * ***_one that vests only upon the attainment of a predetermined perf. obj._***

Answer 50

* ***_stk grants - company gives EEs share of stk over a designated time period_*** * available to ALL EEs * ***_strength of these plans = versatility_*** * ***_can either reinforce a stong emphasis on perf. or inspire greater commitment and retention of EEs_***

Answer 51

* not uncommon * goal is to motivate indiv. behavior and to insure that EEs work together, to promote team and corp. goals * usually start w/ standard indiv. and group measures * variable pay level is ased on how well indivs. perform and how well the company does * payout is portioned out based on how well the indiv. worker does and the other portion is dependent on corporate perf.

Answer 52

* these plans usually specifiy that payouts only occur after the company reaches a certain profit target * then variable payouts for indiv., team, and company perf. are triggered * usually favored when top mgmt doesn't like to make payouts if the company loses money

A9 - Aligning Strat., Talent, and Rewards: Pay-for-Perf. Plans Flashcards

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