Company Incentive Plans - Labour Cost, Cost Accounting Video Lecture | Cost Accounting - B Com

hello i am cherie pig-out and this is my
final presentation for human resource
management and i will be covering
company incentive plans
what are incentive plans well they're
also known as variable pay programs
because they are not fixed pay like
someone's salary or hourly wage and they
vary based on some type of performance
plan they can consist of bonuses
incentives and recognition to employees
incentive plans reward employees for
continued contributions to the
organization
so both organization and the employee
come out as winners there are three
types of incentive plans individual
plans group plans and enterprise why
have incentive plans well there are lots
of benefits around them one they align
employee efforts with organizational
goals objectives as I mentioned earlier
it could be a win-win situation because
both the employee and the employer can
come out as winners as long as everybody
works hard to meet those objectives it's
flexible vs. fix pay again it's
considered variable so that it the paid
an employee can actually earn more pay
on top of what they have if they achieve
specific goals and objectives it is the
pay for performance based on achieving
the goals and objectives so it doesn't
encourage employees to work even harder
because then they'll be compensated for
that extra effort
if fosters teamwork and cohesiveness
especially if there are group and set of
plans so it really does encourage them
to work harder together to achieve that
goal it distributes success so everybody
feels like winners when they obtain
their goal and they're compensated for
it
it increases equity and justice at the
company so employees become more
accountable for their work and take more
ownership in the work as assigned to
them and so they can meet those goals an
incentive plans are known to attract and
retain top performers so not only you
does it help retain those top performers
it helps them continue to be top
performers and it can also help with
people who aren't top performers who are
getting by if they're seeing benefits
that others are getting meeting their
incentive plans then that can encourage
them to work just as hard as well how
does a company implement a successful
incentive plan they should identify key
organizational metrics that encourage
employee behavior this way based on what
organizational objectives there are then
you can go ahead and then make specific
targets within the incentive plan and so
they need to be in line with what the
company goals and objectives are they
also need to be measurable you know
specific goals that's very clear that an
employee can understand I'm involved
employees the incentive program should
seem fair to employees a they need to be
seen as attainable goals not something
that's impossible to achieve or it can
affect their morale find the right
incentive payout payoff formulas should
be simple for employees to understand
this way they can monitor you know based
on my performance
I'll be paid out this much or I
understand how how my performance will
be measured to determine what my payout
will be establish a clear link between
performance and payout you know
employees need to understand this is the
reward is not an entitlement it is based
on the extra effort that they put in and
what they achieve in order to receive
pay and have continuous communications
to the employees if they're going to be
any changes or improvements to the plan
they need to understand that they also
need to have a way to ask questions in
case they don't understand something or
a minute clarification on their
objectives or on the pail plan the most
important thing to help a company have a
successful incentive plan is that
employees must believe in it in order
for them to believe in it they need to
understand it the company needs to
properly promote the incentive plan
there needs to be excitement put into
the employees so that they'll work hard
to achieve what those goals are set out
for
so every incentive plan that a company
has as mentioned earlier should have
clear objectives for the employees and
the perform the objectives and their
performance need to be measurable in
order to be able to calculate you know
but achieved and how they'll be paid out
and there are certain views and films
for round measuring ones performance and
it there's actually examples of dues for
all the incentive type plans so you have
individual group and enterprise now if
you're measuring individual performance
you want to make sure that is
quantitative and you're measuring simple
work so it's Clute you know so an
employee and understand what they're
going to be measured on and do you
measure work you know independent of
others contribution so if Lily affected
some you know her work was delayed and
affected Elizabeth's output then you
shouldn't you know measure that piece of
it if it's group then do measure the
group interdependent work because you
know they'll be measured as a team and
if it's enterprise then be sure to
measure you know the organization's
interdependent work which could probably
involve like different departments and
how they affect one another and results
that employees can control you know if
it's if there was some type of issue
because of you know something you know
done above at the executive level that
shouldn't impact an employee's
performance payout and then across the
board for all three plans you should be
measuring you know the relationship
between work and performance because the
incentive plans are you know pay for
performance payouts some examples around
what not to measure you know for
individual plans it shouldn't measure
based on preferences so you know don't
measure you know based on who you like
and dislike
cake you know don't consider you know
personalities political preferences
don't measure without considering
contributions of peers now within a
group plans don't measure without
considering contributions of other teams
you know what another team how another
team may have impacted the team that
you're measuring and don't measure
unless there is a mechanism for teams to
discipline slackers you know if there is
a team incentive plan and someone's not
doing their part there needs to be some
type of performance management around
that and then an enterprise you know
don't measure and less employees can see
how their work actually contributes to
the enterprise again you know when you
have an incentive plan employees need to
understand how the performance will be
measured and calculated they need to
understand that formula for payout and
don't measure without considering the
effects of the environment you know is
there an economic downturn right now is
there a change going on to the for the
companies being sold
I mean that type of scenarios could
impact overall performs calculations and
can affect the employees payout so I
think this is the fun part is learning
about the different incentive plans and
so the first type are individual
incentive plans and there's a variety of
them one example is a piece work
incentive planet and there's actually
two types you have your straight um your
straight piece work and so basically
basically it's unless say you have
people who make furniture and they will
be paid a certain amount for each piece
of furniture they make so for every
chair you make I will give you ten
dollars um so obviously the more chairs
they make the more money we're going to
make then there's also a differential
piece rate and that's typically you know
somebody has a baseline of chairs if any
and then for every chair on top of that
baseline they'll earn extra money so if
somebody needs to make 30 chairs a day
and receive $100 and then for every
additional chair they make over 30
they'll earn another hundred dollars and
that'll push them to you know produce
more in a day then you have your
standard our plan um so this is let's
say it works well with mechanics and
probably construction efforts but if
someone says all right um it'll take me
five hours to you know fix this car that
migrated to you is going to be five
hundred dollars and if you can finish it
in three hours I'm still going to give
you five hundred so that's a huge
incentive for somebody to finish their
work a lot quicker but you know quality
still needs to be looked at as well then
our bonuses which are very popular so
that's basically earning additional
money on top of your your current Saxum
salary or hourly pay um so let's say an
employee has certain goals and
objectives they meet they can earn a 10%
bonus on top of their salary
there's also spot bonuses so you know if
a manager feels that their employee did
a great job on that project hey I'm
going to give you a $1,000 bonus on the
spot then there's merit pay um so these
are basically you know your your raises
a lot of common ones for annual raises
but I'm trying to see this less and less
than companies especially if they're you
know not financially capable of doing it
um so it does you know it offers there's
pros and cons from about merit pay you
know if an employee has specific goals
and objectives that they need to meet
and they really want to get that pay
increase then yeah it'll it'll help them
take more accountability and work harder
but once you
get that let's say you you give the
employee the merit pay and now that that
actually affects their fixed pay right
it's no longer flexible now they're
going to earn that higher pay rate for
the next year or whatever it may be but
what happens if the performance comes
down right so they they did great to
earn that pay increase and then you know
three months after they get the increase
if there's issues going on and so you're
paying them at that higher rate still
but yet their performance didn't stay on
top and didn't continue to grow and
there's awards and recognition so you
know a lot of companies have an employee
recognition program um you know like a
monthly employee or best customer
service rating and so these employees
are recognized and a lot of times our
cash rewards for that this could be done
you know recognize them in group
settings where you Monk your team or
individually and then there's sales
incentive plans um you know for your
sales staff and there's three kinds that
can be used one is a street salary plan
so you know you can pay your salesperson
you know a certain salary and you know
which includes everything they have to
do they don't have to worry about not
making a consistent pay on a regular
basis um because times are tough then
you have your straight commission plan
come in services people who get paid um
specifically around their sales volume
so the more they sell and make money for
the company the more they're going to
make as well the most common one that
I've seen a combined straight and salary
and Commission plan so salesperson could
earn less a fifty thousand on a
temporary sale boom they make they'll
earn you know twenty five percent
commission off of each sale so they not
only have a base pay but then they also
make additional income for for the sales
volume
so next there are a group incentive
plans and the first one or one that can
be developed is team compensation so
basically um a whole team on the team
members will be measured on together to
achieve a specific goal and objective
when developing a team compensation
incentive plan there are three things
that need to be considered or done first
you need to set the performance measures
what exactly is this team going to be
measured on and it should be tied
somehow to company objectives so let's
say that company is trying to reduce um
recruiting costs and so you know the
team is going to use different measures
when they're recruiting a new personnel
then what's the size of the incentive
bonus that needs to be determined so
let's say that team um is able to save
on ten thousand dollars in recruiting
costs for specific time period they need
to know you know what that bonus is
going to be so the team will be paid you
know will earn 10% bonus on top of the
the savings that they were able to make
and then third a payoff formula is
established and it's communicated to
employees so every single team member
needs to understand how they will be
paid out yes there's a 10% bonus for no
cost savings around recruiting but you
know what does each person on that team
earn is it split out equally across
everyone is there a lead who'll earn a
little more than the rest of the team
was you know is there a part-time person
there he'll only receive a percentage so
each team member needs to understand
what their formula is and how will be
how they'll be paid out the next type of
group incentive plan is gain sharing and
this again sharing plans involve both
employees and the organization um to
have a common goal and then based on
meeting those objectives then there's a
formula put into place to determine how
employees will be paid out a lot of it
is you know company wants to save pause
around a certain objective and the
employee you know the base on the
overall success of that you know if
there's a certain amount of savings
involved and then employees can be paid
out based on those savings but how it's
how the performance is measured is based
on output simple inputs and outputs of
that objective so for example um some
examples of outputs are you know items
that are produced total standard costs
you know the number of customer orders
inputs are basically the resources to
take to develop those outputs so you're
you need to consider the cost of
employees materials and inventory no
goods that or services are purchased to
help produce what your outputs are going
to be and so two common goals around
game sharing is you have more output
with less input because obviously that
means that comfort will make more money
um and then or you have equal production
output but it took less input to get
that output again the company will save
more money so based on the total savings
um you know between the input and output
then employees you know there'll be a
formula so that employees will earn some
type of bonus around that
there are two examples of gainsharing
incentive plans and the first one is
called the Scanlon plan and Scallon plan
involves both employees and management
committees to determine what the cost
reduction improvements are going to be
and with the Salomon plan employees are
really encouraged to offer their own
ideas and suggestions on how to improve
productivity and how they'll be rewarded
for their efforts another example of a
gain sharing incentive plan is impro
scare and this is based on the overall
productivity of the work team you know
the output so um basically impress your
bonuses um it depends on you know how
much productivity did the team improve
overall it's not just based on one
employments productivity but the whole
team if they were able to produce more
output on they'll be paid out on based
on that total output now we move into
enterprise incentive plans and I like
this type of incentive plan because it
involves everyone in the organization
who will participate in the compensation
count so it really feels you know that
it's important an incentive plan is seen
as to be fair by employees so you know
everybody's rooting for the company to
be successful because the more
successful the company is then everybody
is going to share in that wall and
that's success so yeah it's based on the
organization's success over specific
time period and that can usually be
within a year so if the company is doing
well then there's an enterprise
incentive plan then the employees can
look forward to being rewarded as well
and it creates a culture of ownership um
it really encourages teams um to work
hard together because everybody wants to
see the company thrive and do well and
there are three types of enterprise
incentive plans
the first is profit sharing plan so if
the company has a certain amount of
profit and they will share a certain
amount to their employees across the
board and I mean there are special
formulas around profit sharing as well
um so maybe depending on someone's grade
level you know they'll earn certain
percent um and then you know something
at a higher level of may earn a higher
level posess percent then there are
Spock options so a company can actually
have a window in time where they offer
their employees the opportunity to
purchase Company stock at a fixed rate
and it's usually at a discounted rate
and that only happens during a certain
amount of time and this can help
employees feel like you know they they
have some ownership in the company and
they feel more tied to the company and
it's going to make them you know
motivate them more to work harder and
achieve their own goals and then there's
the employee stock ownership plan which
are also called es o P so instead of
employees purchasing stock the company
actually uses their own stock with their
own funds to hold stock and let's say an
employee's account that they'll earn
over time and then if an employee does
leave then they're able to take that
stock option with them as well
company incentive plans are a real
crucial thing to have especially if you
know you really want to push your
workforce to participate in the overall
company's success and feel like that
eight big come out ahead as well you
know it really helps with employee
morale job satisfaction and bottom line
retaining your top performers and if a
company is able to implement incentive
plan successfully then everybody comes
out as as winners