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qGuidelines on the distribution of increments an attempt to overcome the varying standards of judgment leading to an all my ducks are swans approach to rewarding staff.The distribution scale may be related to a guideline like this:AssessmentIncrement(%)Distribution A outstanding9%10%10%B good7%8%20%C satisfactory4%6%50%D needs improvement0%10%E unsatisfactory0%10%Guidelines on rates of progression managers are helped to plan salary progression by being given an indication of the number of years it should take staff at different levels of performance to reach the top of the grade and,in zones of salary range,the limits within the range which can be reach according to their performance.AssessmentLimit In Grade Typical Length Learning zone1 to 3 years 2 yearsPerforming zone4 to 6 years 5 years Exceeding zone2 to 4 years 3 years -qAbsorbing market rates pressures arises when general and individual salary reviews have not enabled the companys salary levels to keep pace with increase in market rates.it is exacerbated if the company is expanding and is compelled to obtain key staff who are in short supply.qWidening differentials differentials are widening between and within companies in the following areas:-between high-and low-paying organizations the variations in prosperity between differing sectors of industry and commerce and between regions are major contributors to this problems.-between companies paying bonuses or incentives and those paying straight salaries.-between top and middle management within companies this is partly incentive led -between executives recruited by search and those with a one-company career.qPerformance pay tend to favour the few whose results can be measured.merit-assessment are too often based on subjective and biased judgments.can be avoided only by intensive training of assessors and by careful monitoring of the appraisal scheme.qStaff reaching the top of their salary league staff reaching the top of their salary range may feel demotivated if there are no prospects for promotion it is possible to deal with this problem by introducing on top of the normal salary range a premium zone which is reserved for outstanding staff whose promotion is blocked.qStarting salaries the problem of starting new staff at higher rates than existing employees should be minimized if internal salary levels are regularly reviewed in comparison with market rates.qDeteriorating job evaluation schemes the scheme may not have been controlled properly,so that grade drift occurs through unjustifiable upgradings.scheme may have lost credibility because it no longer gives acceptable solutions.administration may have become so bureaucratic that the time taken to produce answers is unduly prolonged.the solution is to make a determined effort to tighten controls and speed up administration,making only minor modifications to the scheme.qMotivate all employees,not just the high-flyers.qIncrease the commitment of employees by encouraging them to identify with its mission and values.qReinforce existing cultures and values to foster high levels of performance,innovation and teamwork.qHelp to change cultures where they need to become more performance-oriented and results-oriented;or where the adoption of other new and key values should be rewarded.qDiscriminate consistently and be equitable on the distribution of rewards to employees according to their performance results and contributions.qDeliver a positive message about performance expectations of the company focuses attention on key performance issues.qDirect attention and endeavour by specifying the organizations performance goals and standards.qEmphasize individual performance or teamwork as appropriate.qImprove the recruitment and retention of high-quality staff.qPRP costs will be in line with company performance.qMatching the culturesuccessful PRP schemes need to match the culture and core values of the organization.qLinking PRP to business strategythe focus needs to be on strategic business issues which emerge from the business planning process.qBalancing quantitative and qualitative measureswhile most PRP schemes rely on quantitative measures of performance,qualitative factors need to be introduced for the measurement of individual behaviour eg balanced scorecardsqThe need for flexibilityflexibility in making milestone payments which convey the right messages for the future.qThe need to promote teamworkthe importance of teamwork should be recognized in structuring the scheme and defining critical success factors and performance indicators.qThe need to avoid short-term thinkingsetting long-term as well as short-term goals,and discussing short-term objectives in their overall context.qInvolvement in the design processdesigning PRP schemes should be an iterative process:trying and testing ideas on measures and structures with those who will eventually be involved in a scheme.qGetting the message acrossall types of PRP are very powerful forms of communication.To get the right messages across for any scheme,one must make key decisions on the following:How can the scheme achieve the best possible launch?Is it better to give no pay-out rather than a low pay-out?What is the best psychological moment for pay-out?What communications should be used to gain maximum motivational impact from payment?How should communications be handled when the scheme requires changes?Competence bandsExcellentGoodSatisfactoryPerformance LevelsPerformingLearning New Entry Professional Competent Professional Experienced Professional Salary($)ExceedingqDirectly link individual performance with salary progression.qProvide individualized progression rates.qRecognize increasing competence gained through experience.qDependent on the quality of performance appraisal;which can be arbitrary,subjective or inconsistent.qUnless carefully conceived and managed,it can demotivate people who,although not be delivering spectacular results are still important.qMerit payment,as distinct from bonuses,create extra payroll costs when benefits such as pensions are related to base pay.qA merit payment is,in effect,a permanent increase in salary,yet the quality of performance in future years may not justify this payment.qMerit pay can result in an upward drift in payroll costs without a commensurate improvement in performance.qMerit pay is effective as a motivator only if rewards are clearly related to performance and are of a significant value.Business ObjectivesMarketing StrategySales Strategy&Coverage ModelSales Job DefinitionQuota and CreditingCompensation Plan DesignSales Plan ImplementationThe Sales PlanBase Salary/Fixed PayVariableFixedTarget SalesIncentive for Quota AchievementProfitSharingRecognitionAccelerated Incentives for Quota Over-achievementTotal PotentialRewardsPerformance$EarningsFAT/MBOStockOptions*Selective use based on position and performance,competency and future growth potentialAbove quotaachievement+=Where it is felt that sales staff need to be motivated by an incentive commission scheme the majority of companies find that the best approach is a basic commission on sales volume or,in more sophisticated firms,on the contribution to fixed costs and profits of the sales of each product group or product.The standard commission is typically set at about one-third of salary to provide a noticeable incentive without adversely affecting feelings of security.A successful sales commission plan should satisfy all the criteria listed above for bonus schemes.But it is particularly necessary to ensure the following:A)The reward is fair in relation to the efforts of the sales representative.This means that attention has to be paid to setting and agreeing realistic and equitable targets,making allowances for special circumstances outside the control of the sales representative which might affect sales,and splitting commission fairly when more than one person has contributed to the sale;B)The scheme directs sales effort in accordance with managements policy on the product mix and does not encourage the representative to concentrate on what is easiest to sell;C)The scheme does not encourage high pressure selling which results in an unacceptable level of returns,cancellations and complaints;D)The scheme does not encourage representatives to neglect their indirect selling activities,such as servicing customers.qIt should be appropriate to the type of work carried out and the workers employed.qThe reward should be clearly and closely linked to the effort of the individual or group.qIndividuals or groups should be able to calculate the reward they get at each of the level of output they are capable of achieving.qIndividuals or groups should have a reasonable amount of control over their efforts and therefore their rewards.qThe scheme should operate by means of a defined and easily understood formula.qThe scheme should be properly installed and maintained.qProvision should be made for controlling the amounts paid to ensure that they are proportionate to effort.qProvision should be made for amending rates in defined circumstances.qStraight piece-work payment of a uniform price per unit of production.can be expressed in two main forms:-money piecework-time pieceworkqDifferential piecework the wage cost per unit is adjusted in relation to output.qMeasured daywork the pay of employees is fixed on the understanding that they will maintain a specified level of performance,but the pay does not fluctuate in the short term with their performance.the criteria for success in operating it are the following:qtotal commitment of management,employees and unions.qan effective work measurement system,and efficient production planning and control and inventory control procedures.qthe establishment of a logical pay structure with appropriate differentials from the beginning of the schemes operation.qthe maintenance of good control systems to ensure that corrective action is taken quickly if there are any shortfall on targets.qProvide for the payment of a bonus either equally or proportionately to individuals within a group or team.qBonus is related to the output achieved over an agreed standard or to the time saved on a job.qGroup bonus scheme are in some respects equivalent to individual incentive schemes.qIt encourages team spirit,breaks down demarcation lines,and enables the group to discipline itself in achieving targets.qPotential disadvantages are that management is less in control of production the group decides what earnings are to be achieved and can restrict output.qHow performance will be measured.qThe employees who will take part in the scheme and who will therefore have part of their pay directly linked to their own performance or group.qThe employees who will not take part in the scheme and how they will be compensated.qWhether or not the scheme will be an individual one or one linked to group performance or related to plant performance.qWhether the bonus payments will be related to basic pay.qThe proportion of pay which can be earned as bonus.qThe full basic rate.qThe relationship between output/effort and reward,eg the extent to which,if at all,there is a differential built into the scheme which shares the results of higher productivity between the company and the workers.qThe basis upon which employees not earning bonuses will be paid.qThe timings of bonus payments and the lapse of time before payments are made.qThe arrangements,if any,to alleviate the problems of large fluctuations in bonus payments.qThe methods to be used to maintain the scheme and to inform employees of their earningsqThe principal aim of a bonus scheme is to provide an incentive and a reward for effort and achievement.Executive bonus schemes linked to company profits can also aim to make senior managers feel that their personal prosperity is linked to the performance of their company or unit.qBonus schemes are supplementary to basic salary and are most appropriate where they apply to entrepreneurial types such as chief executives,marketing men and sales staff who,it is assumed,will strive for material reward,and whose results upon which their bonus depends can be clearly linked to their personal efforts and achievements.qThe amount of the award received after tax should be sufficiently high to encourage staff to accept exacting targets and standards of performance.Standard bonuses should not be less than 10%of the basic salary and,if an effective incentive is wanted,the standard bonus should be around 20%to 30%of salaryqThe incentive should be related to quantitative criteria over which the individual has a substantial measure of controlqThe scheme should be sensitive enough to ensure that rewards are proportionate to achievementsqThe individual should be able to calculate the reward he can get for a given level of achievement qThe formula for calculating the bonus and the conditions under which it is paid should be clearly defined qConstraints should be built into the scheme which ensure that staff cannot receive inflated bonuses which may not reflect their own effortsqThe scheme should contain provisions for a regular review,say,every two or three years,which could result in its being changed or discontinuedqThe scheme should be easy to administer and understand,and it should be tailored to meet the requirements of the companyThere are innumerable formulae for executive bonus schemes,and each company must adopt one which suits its own circumstances.The simplest formula is for a percentage out of net profits before tax to be paid Pro-Rata to the executives basic salary.In some schemes,dividend payments and provisions for reserves are deducted from net profits before the distribution of bonuses and there is usually an upper limit to the amount of bonus that can be paid.These schemes are crude but provide a direct incentive as long as results are directly influenced by the actions of the executives in the scheme.They can get out of hand unless an upper limit is strictly applied,and their emphasis on profits may make some executives seek short term gains at the expense of the longer term development of the company.Other schemes are based on a formula which measures company performance.Bonuses are paid when a target figure is attained increased further as the target figure is exceeded.The increase of bonus may be on a straight-line basis,ie.directly proportionate to the improvement in results.Alternatively,it may be geared either by decreasing the rate of bonus the more the target is exceeded,which is generally regarded as poor practice,or by increasing the rate,which could be an expensive device.A straight-line progression is to be preferred.The formula in some schemes is directly applied to the executives salary.In other schemes,a percentage of profits on an increasing scale is released into a bonus pool which is distributed in proportion to salary.qRange of benefits provided-benefits such as pensions and holidays are mandatory;whilst permanent health insurance are optional extras.qScale of benefits provided-taking into account its cost to the company and its perceived value to employees.qProportion of benefits to total remuneration-a decision has to be made on the proportion of total remuneration to be allocated to other benefits which incur expenditure of cash by the company.-this policy decision is related to decisions on the range and scale of benefits provided.qAllowing choicea policy is required on the extent to which the company should allow its employees to choose the benefits they want.qAllocation of benefitsthe policy on the allocation of benefits determines the extent to which it is decided that a single status company should be create.
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