Page 656 - Business Principles and Management

Chapter 24 • Rewarding and Developing Employees

Costs are then higher than budgeted and profits are reduced. But if a company
tries to limit the level of production or cut the piece rate to hold down costs,
employees will be upset.
Some companies are developing innovative ways to compensate performance
on specific, short-term projects that motivate employees while not adding greatly
to the organization’s costs. The reward is often in the form of a product or service
the employee values rather than a direct wage or salary payment. Under one such
plan, managers reward employees who have performed well or have accomplished
a specific, challenging goal. When an individual or a work team achieves the
established goal, the manager provides rewards such as tickets for an upcoming
athletic event or concert, gift certificates for employees to take their family out for
a night on the town, or some other reward that is meaningful to the employees in
recognition of their efforts.

COMBINATION PLANS

To get the advantages of various types of pay systems, some companies use combi-
nation plans. A combination plan is a pay plan that provides each employee a
small wage or salary and adds incentive pay based on performance. Such a plan
assures the employee a specified amount of money but allows the person to earn an
additional amount based on effort. It is particularly effective for jobs that require
a number of activities that do not directly result in increased production or sales.
Some companies provide the incentive based on the performance of a work team
or group rather than on the individual’s performance, in order to encourage coop-
eration and group effort.
A variation of the combination plan is the use of bonuses. A bonus is money
paid at the end of a specific but long period of time (3, 6, or 12 months) for perfor-
mance that exceeds the expected standard for that period. Bonuses relate employee
rewards to achievement of important department or company goals or to the over-
all organizational performance for the time period. If the work unit or company
does well, employees share in the financial success. The bonus system is used to
encourage employees to focus on long-term performance rather than on day-to-
day efforts only. It also encourages them to consider the overall success of the busi-
ness and how their individual job and the work of their department contribute to
that success. To receive a bonus, everyone in the department and organization must
do well.

CHECKPOINT

Describe the differences in the three major types of
compensation plans.

Factors Affecting Pay Levels

Determining the amount of wages and salaries is an important business decision.
In addition to the type of pay plan, companies consider other factors when de-
termining wages and salaries. For example, employees who bring more skills to
the job may be more valuable to the company and therefore receive greater pay
than other employees in the same job. Also, some jobs may be more important
to the company than others, justifying greater pay. The company may pay more

643