HRM ASSIGNMENT ON

VARIABLE PAY/PERFORMANCE INCETIVISATION SCHEME

BY

TEJAS UMANG R. RUCHITA PARTH ANKUR BHARAT RANJEET

PROSPECT OF INTERNATIONALLY APPLICABLE VARIABLE PAY/PERFORMANCE INCETIVISATION SCHEME

INTRODUCTION: Introducing an effective system of incentives can help you to recruit and retain valuable staff, reward performance and productivity. It can also help you get the best out of your employees. Incentives are rewards relating to certain goals. You can also have individual and group or team incentives. The benefits of staff incentive schemes: Incentives - such as performance-related bonuses - can help boost staff performance. The rewards usually relate to the achievement of certain goals, either personal, team or organizational, or a combination of all of these. Pay is often the most important staff motivator and incentives and perks must not be seen as a substitute for a good pay scheme. Incentives do not have to be expensive for business and some are even tax free. Benefits to the business: An effective system of incentives could help:
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persuade staff to join your business retain existing staff increase staff motivation, morale and loyalty boost productivity link individual and business performance focus employees on achieving targets build teamwork

Some incentives may benefit your business indirectly, eg free health assessments may reduce absences. Benefits to staff: Incentives can form an attractive element of an employment package by:
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enhancing the quality of working life rewarding staff efforts adding value to the employment contract

What makes effective schemes? Incentives must be affordable, transparent and appropriate to your business and the jobs they link to. For example, in a sales environment an employer may wish to offer extra pay or benefits when targets are achieved.

It is worth consulting with staff or unions before introducing incentives. They work best alongside good pay schemes and working conditions and can be most successful when implemented with other good management practices, such as performance management, appraisals and appropriate communication and training programmes. Incentive schemes and the options: There is a wide range of incentive schemes, each with different costs. They include financial and nonfinancialschemes, individual and group schemes, and short-term and long-term schemes. The options Financial incentives can help improve performance and be self-financing. Examples include:
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profit-related and share option schemes bonuses commission

Non-financial and non-pay incentives include:

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formal recognition/awards vouchers extra holidays gifts company cars

An incentive scheme can offer employees extra pay as long as they reach individual or group performance targets. Some businesses allow staff to select their own benefits from a pre-defined list, eg staff might be able to choose between health insurance and a gym membership. Promotion and training opportunities are not strictly incentives as they are ways of fulfilling business needs. Negative incentives, eg threat of dismissal, may work in the short term but can decrease morale and loyalty. Other considerations You are required to treat married employees and those in civil partnerships in the same way. For example, if you have a benefits package that is available to an employee's spouse, it should also be available to an employee's civil partner. A civil partner who is treated less favorably than a married person in similar circumstances will be able to bring a claim for discrimination on the grounds of sexual orientation.

HOW EFFECTIVELY A UNIFORM/ HOMOGENOUS SYSTEM CAN BE ADOPTED?

With the global business environment becoming increasingly competitive, companies are aggressively aiming to derive the maximum from their employees. One of the widely deployed practices among corporates to pump up an employees performance is the adoption of the variable pay system. Variable pay is:
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not a part of salary not guaranteed based on individual, group, or organizational performance.

Why has industry so embraced the idea of variable pay? When the company faces hard times it is hard or impossible to lower the wages of current employees. In this way wages become a fixed cost and the only way the employer has to lower costs is to lay off workers. Variable pay can soften this necessity to lay off large numbers of workers by lowering the wage bill for all workers to some degree. A second reason is contained in the "payment for results or performance" concept. If the company relates pay to the desired outcome then this will increase the probability of obtaining that outcome. This may be through the employee working smarter, faster, or longer. As companies have laid-off employees, they have had to become leaner and more efficient. Getting more accomplished with fewer people makes the promise of variable pay very attractive to companies today. Third, as union influence has declined and the ideas of participative management have spread, there is a significant desire to tie the employee into not only doing better on their job, but being interested in how well the total organization is doing, including contributing to the overall company success. Some variable pay plans focus mainly on trying to get the employee to join with management to create a successful company. Common purposes of variable pay include:
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rewarding individual performance, rewarding group performance (e.g., completing a project, meeting organizational objectives, reducing costs), encouraging employees to increase productivity, and controlling payroll costs.

Common forms of variable pay include:

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individual special recognition awards, team or group awards, lump-sum bonuses, on-the-spot awards, group incentive plans, and stock options or grants.

Drawbacks: Three possible drawbacks to the casual incentive approach may include (1) envy among employees, (2) feelings among workers that the supervisor may be acting out of favoritism, and (3) the use of rewards to maintain social distance.

TYPES OF PLANS FOR VARIABLE PAY SCHEME:

Individual-based plans are the most widely used pay-for-performance plans in industry. Of the individual-based plans commonly used, merit pay is by far the most popular; its use is almost universal. Merit pay consists of an increase in base pay, normally given once a year. Supervisors ratings of employee performance are typically used to determine the amount of merit pay granted. Once a merit pay increase is given to an employee, it remains a part of that employees base salary for the rest of his or her tenure with the firm. Team-based pay plans normally reward all team members equally based on group outcomes. These outcomes may be measured objectively or subjectively. The criteria for defining a desirable outcome may be broad or narrow. As is less commonly done in individual-based programs, payments to team members may be made in the form of a cash bonus or in the form of noncash awards such as trips, time off, or luxury items. Plant-wide or company-wide pay-for-performance plans reward all workers in a plant or business unit on the basis of the performance of the entire plant or business unit. Profit and stock prices are generally not meaningful performance measures for a plant or unit because they are the result of the entire corporations performance. Most corporations have multiple plants or units, a factor that makes it difficult to attribute financial gains or losses to any single segment of the business. Therefore, the performance indicator most frequently used to distribute rewards at the plant level is plant or business unit efficiency, which is normally measured in terms of labor or material cost savings compared to an earlier period or another plant or business unit. The broadest type of variable-pay incentive programscompany-wide pay-for-performance plans reward employees on the basis of the entire corporations performance. The most widely used program of this kind is profit sharing. Profit sharing is a company-wide pay-for-performance plan that uses a formula to allocate a portion of declared profits to employees. Typically, profit distributions under a profit-sharing plan are used to fund employee retirement plans.

Examples of structured incentives A structured incentive (1) must be capable of fluctuating (variable pay) as performance changes, and (2) is based on a specific accomplishment-reward connection understood by both management and workers. Examples of typical incentives: piece-rate pay for pruning or picking allowing workers to go home early, with full pay, when they finish a job end-of-season bonus for employees who stay to the end quality or production incentive

 bonus for reducing production costs profit sharing.

Examples of payments or benefits which are not incentives: most mandated benefits such as unemployment insurance, workers compensation nonmandated benefits that do not fluctuate, such as housing wage increases, vacation, or rewards that, once earned, are seldom lost pay tied to time worked (except for bonuses for attendance, difficult shifts, and the like). Steps in Establishing an effectively a Uniform/ Homogenous system: This section provides seven guidelines helpful in deciding whether to establish, and how to design and troubleshoot, structured incentive programs. 1. Analyze the challenge and determine if incentives are appropriate. 2. Link pay with performance. 3. Anticipate loopholes. 4. Establish standards and determine pay. 5. Protect workers from negative consequences. 6. Improve communications. 7. Periodically review the program.

SUMMARY
Incentive pay has the potential to increase worker productivity if properly designed and maintained. Even though employees know that attention to detail, increased productivity, or suggestions may bring about rewards, casual incentives are characterized by the inexact or unexpected timing and amount of the reward. Variable Pay Incentives are most likely to succeed if they have (1) accurately established standards; (2) clearly linked superior performance with pay or a valued reward; and (3) carefully considered what type of performance the incentive stimulates. Effective incentives are designed so the more an employee earns, the more the farmer benefits. Hence this system of variable pay should be applied through all the organizations as soon as possible especially in the maturing companies and this would lead to a happier and just framework and culture within them.