Incentive Pay and Team Based Pay

1. Incentive Pay & Team Based Pay
Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)
Professor
Al-Qurmoshi Institute of Business Management
Hyderabad
1

2. Incentive Pay
Incentive pay rewards employees for achieving defined
goals.
The company sets performance objectives at the
beginning of the pay period and if these are achieved,
employees receive a lump-sum payment.
Incentive pay plans can be based on the performance of
the individual, team, business unit or company.
2

3. Incentive Pay (Contd.)
A lump sum payment (such as, sales commissions) is the
traditional method .
Usually the formula & relationship between performance and
payment of the lump sum, are known beforehand.
Another traditional method of rewarding performance is
piece rates.
Unless related to a reasonable time frame within which the
production should be completed, such rates would not be
related to performance.
3

4. Payment by Result (PBR)
PBR incentive schemes are:
➢Individual time saving – incentive paid for time
saved in performing a task
➢Measured Day work – a fixed amount paid for
predetermined & agreed level of working
➢Commission - a Bonus paid linked to sales, reward
pre-determined or percentage of total sales
4

5. Individual Performance Related Pay
Individuals receive incentive as increases to basic pay
or cash bonuses, linked to performance
Scope provided for a joined pay progression within
the pay bracket
High level of achievement may be rewarded by cash
bonuses that are not consolidated
Individuals are eligible for such bonuses when they
have reached top of pay bracket and completely
progressed along their learning curve
5

6. Team-Based Pay
Companies offer team-based incentive pay to
encourage team members to work together
effectively.
Team-based incentives encourage collaboration and
cooperation to achieve shared goals.
Collaborative teams will structure the work to ensure
that each team member is able to use his skills and
abilities most effectively.
For example, a team member with planning skills
will organize the work flow while team members
with technical skills will focus on completing the
work. 6

7. Aim of Team Based Pay
 To reinforce behaviours that lead and sustain
effective teamwork
To encourage group endeavour and cooperation,
rather than to concentrate only on individual
performance
Research showed that most common method of
providing team based pay, was to distribute bonus to
team members
Design for team based pay will be contingent on
requirements and circumstances of organisation, and
these will always differ
7

8. Types of Team Based Pay
Team Based Pay are of three types:
Gain-sharing
Profit-sharing
Employee stock ownership plans (ESOPS).
8

9. Gain-sharing
Gain-sharing refers to a compensation system which
divides between the employer and employees the
results of improved performance consequent upon
the better use of human resources resulting in
productivity gains.
Sharing is according to an agreed, pre-determined
formula.
9

10. Profit Sharing
These schemes are linked to the profits of an enterprise,
a part of which is paid as bonus to employees
It may be a cash payment, or a deferred payment kept,
for instance, in a special fund for a particular period.
10

11. Employee Stock ownership plan
(ESOP)
Employee stock ownership plan (ESOP) - an
employee benefit trust linked to share participation
scheme
Trust receives contributions from company or borrows
money and then buys shares in company and allocate
to employees
Stock option schemes - permit companies to grant
share to directors and employees in tax- effective
manner
They are given opportunity to buy shares in their
companies at a future date, but at the current price
11

12. Advantages of Team Based Pay
Team pay can:
➢Encourage team-working and co-operative behaviour
➢Act as a lever for cultural change in the direction of quality
and customer focus
➢Enhance flexible working within teams and encourage
multi-skilling
➢Provides an incentive for group collectively to improve
performance and team process
➢Encourage less effective performers to improve in order to
meet standards
➢Serve as a means of developing self-managed or directed
teams 12

13.
Disadvantages of Team Based Pay
Effectiveness depends on well defined teams, difficult
to identify and they need to be motivated by a purely
financial reward
Team pay may seem inappropriate to individuals
whose feelings of self-worth could be diminished
Distinguishing what individual team would be
rewarded may be difficult to identify
13