Tutorial 12
Group Activity
Working in groups, develop an incentive plan for the following positions: chemical engineer, plant manager, used-car salesperson. What factors did you have to consider in reaching your conclusions? I would give the chemical engineer a merit raise system because he or she has little perceived control or impact over the production or profitability of the company. The plant manager should receive an annual bonus tied to the profitability of the plant, as well as a stock option plan to encourage long-term planning as well. The used-car salesperson would likely receive a straight commission plan because sales are more directly dependent on his or her ability to sell those cars to prospective customers. (LO 12.6;AACSB: Analytic Skills; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
Discussion Questions
1.Compare and contrast six types of incentive plans. Various types of incentive plans were presented in the text, including piecework plans, straight and guaranteed plans, standard hour plans, plans for salespersons (commissions and combination plans), and group incentive plans. With the piecework plans, earnings are tied directly to what the individual worker produces and are more appropriate in a manufacturing organization. Commissions are more appropriate for salespeople in situations where they are largely unsupervised. In group incentive plans like the Scanlon Plan, all workers involved in developing and implementing cost savings share in the benefits of the suggestions.(LO 12.2;AACSB: Analytic Skills; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
2.Explain five reasons why incentive plans fail. When incentive plans fail, it can be for a variety of reasons like: employees do not believe that effort will obtain the reward, bad management overrides the plan, rewards are tied to the wrong measures, the plan is complicated and difficult for employees to understand, or standards are too high or too low. (LO 12.2; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
3.Describe the nature of some important management incentives. Two widely used management incentive plans are merit pay and profit-sharing plans. Merit pay is any salary increase that is awarded to an employee on his or her individual performance. Advocates argue that only pay tied directly to performance can motivate improved performance. Profit-sharing plans distribute a portion of the company's profits to employees in the form of a bonus. Research shows that benefits are more subtle than increased productivity—benefits are possibly in the form of better worker commitment. There might also include long-term incentives. (LO 12.4; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
4.When and why would you pay a salesperson a combined salary and commission? Salary plans work well when your objective is prospecting work or when the salesperson is primarily involved in account servicing. They are often found in industries that sell technical products. A commission plan is appropriate when sales costs are proportional to sales. This can reduce the selling investment for fixed costs. The straight commission also provides salespeople with the greatest possible incentive, and there is a tendency to attract high-performing people. Combination plans are used when the firm wants to direct its salespeople's activities by detailing what services the salary component is being paid for while the commission component provides a built-in incentive. (LO 12.3; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
5.What is merit pay? Do you think it's a good idea to award employees merit raises? Why or why not? Merit pay is a salary increase that is awarded to an employee based on his or her individual performance. It is a good idea to award merit raises when you have a good performance appraisal system and employees' individual effort can be fairly and accurately evaluated or measured. (LO 12.5;AACSB: Analytic Skills; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
6.In this chapter, we listed a number of guidelines for not instituting a pay-for-performance plan. Do you think these points make sense in terms of motivation theory? Why or why not? All of these reasons are, or can be, valid. There will also be organizational situations where one or more of them will not be valid. Students should describe situations in which the reason is (or is not) valid. (LO 12.1;AACSB: Analytic Skills; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
7.What is a Scanlon plan? Based on what you've read in this chapter, what features of an effective incentive program does the Scanlon plan include? This is an incentive plan that was developed in 1937 by Joseph Scanlon. It includes features such as a philosophy of cooperation, identity, competence, involvement, and sharing of benefits. All these are features of a commitment-building program. The Scanlon plan is actually an early version of what today is known as a gainsharing plan. (LO 12.5;AACSB: Reflective Thinking Skills; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)
8. Give four examples of when you would suggest using team or group incentive programs rather than individual incentive programs. Students should review the sections in the chapter on team or group incentive programs and individual incentive programs, and think about situations where they would prefer one incentive plan over the other. (LO 12.5;AACSB: Analytic Skills; Learning Outcome: Describe the objectives of performance-based pay and financial incentives in the workplace)