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Learning Objectives 1. Explain two reasons why companies use incentive pay. 2. Concisely provide a contrast between incentive pay methods and traditional pay methods. 3. List three categories of incentive pay plans. 4. Define individual incentive plans and give one example. Copyright © 2015 Pearson Education, Inc. 4-2 Learning Objectives (cont’d) 5. Provide the definition group incentives and summarize two examples of group incentive plans. 6. Discuss the advantages and disadvantages of group incentive plans. 7. Offer a definition of company-wide incentive plans with an example. 8. List and summarize five factors in the design of incentive pay programs. Copyright © 2015 Pearson Education, Inc. 4-3 Learning Objective 1 Explain two reasons why companies use incentive pay. Copyright © 2015 Pearson Education, Inc. 4-4 Incentive Pay • Compensation fluctuates according to: – A preestablished formula – Individual or group goals – Company earnings • Adds to base pay • Controls costs • Motivates employees Copyright © 2015 Pearson Education, Inc. 4-5 Incentive Pay Assumptions • Effective incentive pay systems are based on three assumptions: 1. Individual employees and work teams differ in how much they contribute to the company, both in what they do as well as in how well they do it. 2. The company’s overall performance depends to a large degree on the performance of individuals and groups within the company. Copyright © 2015 Pearson Education, Inc. 4-6
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