Key Points
1. Determining individual pay involves asking the question, "How should one employee be paid relative to another doing the same job?"
2. Methods of payment include (a) flat rates and (b) pay for time worked (wages and salaries).
3. There is a growing realization that traditional pay systems do not effectively link pay to performance. The trend is toward a total compensation approach made up of base pay, variable pay, and indirect pay or benefits.
4. Flexibility is an essential ingredient in any compensation plan and can be built using a variable pay approach.
5. Methods for paying employees on the basis of outcome are usually referred to as incentive forms of pay. These include merit pay, individual incentives, team incentives, and organizationwide incentives.
6. The most widely used plan for managing individual performance is merit pay.
7. Individual incentives pay the employee on the basis of units produced or dollar value of sales. Methods include straight piecework, standard-hour plan, differential piece rate (Taylor plan), commission, and production bonus systems.
8. Team incentives are used to build a team culture, with rewards provided on a group basis.
9. Organizationwide incentives, where rewards are based on shared profits generated through employees' efforts or on money saved as a result of employees' efforts to reduce costs, are the most common incentive pay system.
10. Suggestion systems can improve employee relations, foster high-quality products, reduce costs, and increase revenue.
11. Gainsharing incentive plans, inc ...