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Incentive Pay Systems

Incentive Pay Systems. Pay for Performance Plans. Individual incentive plans 28% Group incentive plans Profit-Sharing 32% Gain-sharing 13% ESOPs Variable Pay Pay for Knowledge/Skill-Based 5% All-salaried work force 11% Lump sum awards, bonuses. Individual Incentive Plans.

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Incentive Pay Systems

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  1. Incentive Pay Systems

  2. Pay for Performance Plans • Individual incentive plans 28% • Group incentive plans • Profit-Sharing 32% • Gain-sharing 13% • ESOPs • Variable Pay • Pay for Knowledge/Skill-Based 5% • All-salaried work force 11% • Lump sum awards, bonuses

  3. Individual Incentive Plans Pay plans designed to relate pay directly to performance or productivity, often used in conjunction with a basic wage and salary system. • Piece rate plans • Plans based on time saved • Plans based on commission • Individual bonuses • Suggestion Systems

  4. Incentives for Managers • Annual bonuses • Long-term performance plans • Performance share plan (unit plan) • Stock options • Qualified stock options • Nonqualified stock options • Incentive stock option (ISO) • Stock-for-stock swap • Stock appreciation rights • Phantom Stock • Restricted stock • Premium price options

  5. Group Incentives • Organization-wide incentifes • Profit Sharing and Gain-Sharing Plans • Scanlon-type plans • Employee Stock Ownership Plans (ESOPs)

  6. DuPont’s “Profit Sharing”

  7. Three Gain-Sharing Formulas

  8. Exhibit 5-7Scanlon, Rucker, and Improshare Plans: A Comparison of Key Features FEATURE SCANLON RUCKER IMPROSHARE Program goal Basis for savings Employee involvement Type of employee involvement Bonus payout frequency Productivity improvement Labor costs Required Screening and production committees Monthly Productivity improvement Labor costs plus raw materials costs plus services costs (e.g., utilities) Required Screening and production committees Monthly Productivity improvement Completing work at or sooner than production standard Not required Not applicable Weekly

  9. Exhibit 5-4A Sample Behavioral Encouragement Plan That Rewards Employee Attendance At the end of each three-month period, employees with exemplary attendance records will receive monetary incentive awards according to the following schedule. Note that the number of days absent does not refer to such company-approved absences as vacation, personal illness, jury duty, bereavement leave, military duty, scheduled holidays, and educational leave. NUMBER OF DAYS ABSENT MONETARY INCENTIVE AWARD 0 days (perfect attendance) 1 day 2 days 3 days 4 days $250 $200 $100 $ 50 $ 25

  10. Typical Performance Measures for Individual, Group, and Company-wide Incentive Plans • Group Incentive Plans • Customer satisfaction • Labor cost savings (base pay, overtime pay, benefits) • Materials cost savings • Reduction in accidents • Services cost savings (e.g., utilities) • Individual Incentive Plans • Quantity of work output • Quality of work output • Monthly sales • Work safety record • Work attendance • Company-wide Incentive Plans • Company profits • Cost containment • Market share • Sales revenue

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