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SalaryReviewGuidelinesGuidelinesonthedistributionofincrements anattempttoovercomethevaryingstandardsofjudgmentleadingtoan‘allmyducksareswans’approachtorewardingstaff.Thedistributionscalemayberelatedtoaguidelinelikethis:
Assessment
Increment(%)
Distribution
A–outstanding 9%–10% 10% B–good 7%–8% 20% C–satisfactory 4%–6% 50% D–needsimprovement 0% 10% E–unsatisfactory 0%
10%SalaryReviewGuidelinesGuidelinesonratesofprogression managersarehelpedtoplansalaryprogressionbybeinggivenanindicationofthenumberofyearsitshouldtakestaffatdifferentlevelsofperformancetoreachthetopofthegradeand,inzonesofsalaryrange,thelimitswithintherangewhichcanbereachaccordingtotheirperformance.
Assessment
LimitInGrade
TypicalLength
Learningzone 1to3years 2years Performingzone 4to6years 5years Exceedingzone 2to4years 3years - SalaryProblemsAbsorbingmarketratespressures
ariseswhengeneralandindividualsalaryreviewshavenotenabledthecompany’ssalarylevelstokeeppacewithincreaseinmarketrates. itisexacerbatedifthecompanyisexpandingandiscompelledtoobtainkeystaffwhoareinshortsupply.Wideningdifferentials
differentialsarewideningbetweenandwithincompaniesinthefollowingareas: -betweenhigh-andlow-payingorganizations–thevariations inprosperitybetweendifferingsectorsofindustryand commerceandbetweenregionsaremajorcontributorstothis problems. -betweencompaniespayingbonusesorincentivesandthose payingstraightsalaries.
SalaryProblems -betweentopandmiddlemanagementwithincompanies– thisispartlyincentiveled -betweenexecutivesrecruitedbysearchandthosewitha one-companycareer.Performancepay tendtofavourthefewwhoseresultscanbemeasured. merit-assessmentaretoooftenbasedonsubjectiveandbiasedjudgments. canbeavoidedonlybyintensivetrainingofassessorsandbycarefulmonitoringoftheappraisalscheme.SalaryProblemsStaffreachingthetopoftheirsalaryleague
staffreachingthetopoftheirsalaryrangemayfeeldemotivatediftherearenoprospectsforpromotion itispossibletodealwiththisproblembyintroducingontopofthenormalsalaryrangeapremiumzonewhichisreservedforoutstandingstaffwhosepromotionisblocked.Startingsalaries
theproblemofstartingnewstaffathigherratesthanexistingemployeesshouldbeminimizedifinternalsalarylevelsareregularlyreviewedincomparisonwithmarketrates.SalaryProblemsDeterioratingjobevaluationschemes
theschememaynothavebeencontrolledproperly,sothatgradedriftoccursthroughunjustifiableupgradings. schememayhavelostcredibilitybecauseitnolongergivesacceptablesolutions. administrationmayhavebecomesobureaucraticthatthetimetakentoproduceanswersisundulyprolonged. thesolutionistomakeadeterminedefforttotightencontrolsandspeedupadministration,makingonlyminormodificationstothescheme.ObjectivesofPerformance-RelatedPay(PRP)Motivateallemployees,notjustthehigh-flyers.Increasethecommitmentofemployeesbyencouragingthemtoidentifywithitsmissionandvalues.Reinforceexistingculturesandvaluestofosterhighlevelsofperformance,innovationandteamwork.Helptochangecultureswheretheyneedtobecomemoreperformance-orientedandresults-oriented;orwheretheadoptionofothernewandkeyvaluesshouldberewarded.Discriminateconsistentlyandbeequitableonthedistributionofrewardstoemployeesaccordingtotheirperformanceresultsandcontributions.ObjectivesofPerformance-RelatedPay(PRP)Deliverapositivemessageaboutperformanceexpectationsofthecompany–focusesattentiononkeyperformanceissues.Directattentionandendeavourbyspecifyingtheorganization’sperformancegoalsandstandards.Emphasizeindividualperformanceorteamworkasappropriate.Improvetherecruitmentandretentionofhigh-qualitystaff.PRPcostswillbeinlinewithcompanyperformance.KeyFactorstoConsiderWhenIntroducingPRPMatchingtheculture successfulPRPschemesneedtomatchthecultureandcorevaluesoftheorganization.LinkingPRPtobusinessstrategy thefocusneedstobeonstrategicbusinessissueswhichemergefromthebusinessplanningprocess.Balancingquantitativeandqualitativemeasures whilemostPRPschemesrelyonquantitativemeasuresofperformance,qualitativefactorsneedtobeintroducedforthemeasurementofindividualbehaviouregbalancedscorecardsTheneedforflexibility flexibilityinmaking‘milestone’paymentswhichconveytherightmessagesforthefuture.Theneedtopromoteteamwork theimportanceofteamworkshouldberecognizedinstructuringtheschemeanddefiningcriticalsuccessfactorsandperformanceindicators.KeyFactorstoConsiderWhenIntroducingPRPTheneedtoavoidshort-termthinkingsettinglong-termaswellasshort-termgoals,anddiscussingshort-termobjectivesintheiroverallcontext.InvolvementinthedesignprocessdesigningPRPschemesshouldbeaniterativeprocess:tryingandtestingideasonmeasuresandstructureswiththosewhowilleventuallybeinvolvedinascheme.GettingthemessageacrossalltypesofPRPareverypowerfulformsofcommunication.Togettherightmessagesacrossforanyscheme,onemustmakekeydecisionsonthefollowing:Howcantheschemeachievethebestpossiblelaunch?Isitbettertogivenopay-outratherthanalowpay-out?Whatisthebestpsychologicalmomentforpay-out?Whatcommunicationsshouldbeusedtogainmaximummotivationalimpactfrompayment?Howshouldcommunicationsbehandledwhentheschemerequireschanges?CompetencebandsExcellentGoodSatisfactoryPerformanceLevelsPerformingLearning
NewEntryProfessional
CompetentProfessional
ExperiencedProfessionalCompetenceandPerformance-RelatedPayCurveSalary($)ExceedingDirectlylinkindividualperformancewithsalaryprogression.Provideindividualizedprogressionrates.Recognizeincreasingcompetencegainedthroughexperience.AdvantagesofindividualMeritPaymentSchemeDisadvantagesofIndividualMeritPaymentSchemeDependentonthequalityofperformanceappraisal;whichcanbearbitrary,subjectiveorinconsistent.Unlesscarefullyconceivedandmanaged,itcandemotivatepeoplewho,althoughnotbedeliveringspectacularresultsarestillimportant.Meritpayment,asdistinctfrombonuses,createextrapayrollcostswhenbenefitssuchaspensionsarerelatedtobasepay.Ameritpaymentis,ineffect,apermanentincreaseinsalary,yetthequalityofperformanceinfutureyearsmaynotjustifythispayment.Meritpaycanresultinanupwarddriftinpayrollcostswithoutacommensurateimprovementinperformance.Meritpayiseffectiveasamotivatoronlyifrewardsareclearlyrelatedtoperformanceandareofasignificantvalue.SalesIncentivePlanBusinessObjectivesMarketingStrategySalesStrategy&CoverageModelSalesJobDefinitionQuotaandCreditingCompensationPlanDesignSalesPlanImplementationTheSalesPlanTotalCompensationArchitectureBaseSalary/
FixedPayVariableFixedTargetSalesIncentiveforQuotaAchievementProfitSharingRecognitionAcceleratedIncentivesforQuotaOver-achievementTotalPotentialRewardsPerformance$EarningsFAT/MBOStockOptions**Selectiveusebasedonpositionandperformance,competencyandfuturegrowthpotentialAbovequotaachievement+=IncentiveSchemesForSalesStaffWhereitisfeltthatsalesstaffneedtobemotivatedbyanincentivecommissionschemethemajorityofcompaniesfindthatthebestapproachisabasiccommissiononsalesvolumeor,inmoresophisticatedfirms,onthecontributiontofixedcostsandprofitsofthesalesofeachproductgrouporproduct.Thestandardcommissionistypicallysetataboutone-thirdofsalarytoprovideanoticeableincentivewithoutadverselyaffectingfeelingsofsecurity.Asuccessfulsalescommissionplanshouldsatisfyallthecriterialistedaboveforbonusschemes.Butitisparticularlynecessarytoensurethefollowing:IncentiveSchemesForSalesStaffA)Therewardisfairinrelationtotheeffortsofthesalesrepresentative.Thismeansthatattentionhastobepaidtosettingandagreeingrealisticandequitabletargets,makingallowancesforspecialcircumstancesoutsidethecontrolofthesalesrepresentativewhichmightaffectsales,andsplittingcommissionfairlywhenmorethanonepersonhascontributedtothesale;B)Theschemedirectssaleseffortinaccordancewithmanagement’spolicyontheproductmixanddoesnotencouragetherepresentativetoconcentrateonwhatiseasiesttosell;C)Theschemedoesnotencouragehighpressuresellingwhichresultsinanunacceptablelevelofreturns,cancellationsandcomplaints;D)Theschemedoesnotencouragerepresentativestoneglecttheirindirectsellingactivities,suchasservicingcustomers.CriteriaforSuccessofIncentiveSchemeItshouldbeappropriatetothetypeofworkcarriedoutandtheworkersemployed.Therewardshouldbeclearlyandcloselylinkedtotheeffortoftheindividualorgroup.Individualsorgroupsshouldbeabletocalculatetherewardtheygetateachofthelevelofoutputtheyarecapableofachieving.Individualsorgroupsshouldhaveareasonableamountofcontrolovertheireffortsandthereforetheirrewards.Theschemeshouldoperatebymeansofadefinedandeasilyunderstoodformula.Theschemeshouldbeproperlyinstalledandmaintained.Provisionshouldbemadeforcontrollingtheamountspaidtoensurethattheyareproportionatetoeffort.Provisionshouldbemadeforamendingratesindefinedcircumstances.IndividualIncentiveSchemesStraightpiece-workpaymentofauniformpriceperunitofproduction.canbeexpressedintwomainforms:-moneypiecework-timepieceworkDifferentialpieceworkthewagecostperunitisadjustedinrelationtooutput.IndividualIncentiveSchemesMeasureddayworkthepayofemployeesisfixedontheunderstandingthattheywillmaintainaspecifiedlevelofperformance,butthepaydoesnotfluctuateintheshorttermwiththeirperformance.thecriteriaforsuccessinoperatingitarethefollowing:totalcommitmentofmanagement,employeesandunions.aneffectiveworkmeasurementsystem,andefficientproductionplanningandcontrolandinventorycontrolprocedures.theestablishmentofalogicalpaystructurewithappropriatedifferentialsfromthebeginningofthescheme’soperation.themaintenanceofgoodcontrolsystemstoensurethatcorrectiveactionistakenquicklyifthereareanyshortfallontargets.GroupIncentiveSchemeProvideforthepaymentofabonuseitherequallyorproportionatelytoindividualswithinagrouporteam.Bonusisrelatedtotheoutputachievedoveranagreedstandardortothetimesavedonajob.Groupbonusschemeareinsomerespectsequivalenttoindividualincentiveschemes.Itencouragesteamspirit,breaksdowndemarcationlines,andenablesthegrouptodisciplineitselfinachievingtargets.Potentialdisadvantagesarethatmanagementislessincontrolofproduction–thegroupdecideswhatearningsaretobeachievedandcanrestrictoutput.DesigninganIncentiveSchemeHowperformancewillbemeasured.Theemployeeswhowilltakepartintheschemeandwhowillthereforehavepartoftheirpaydirectlylinkedtotheirownperformanceorgroup.Theemployeeswhowillnottakepartintheschemeandhowtheywillbecompensated.Whetherornottheschemewillbeanindividualoneoronelinkedtogroupperformanceorrelatedtoplantperformance.Whetherthebonuspaymentswillberelatedtobasicpay.Theproportionofpaywhichcanbeearnedasbonus.DesigninganIncentiveSchemeThefullbasicrate.Therelationshipbetweenoutput/effortandreward,egtheextenttowhich,ifatall,thereisadifferentialbuiltintotheschemewhichsharestheresultsofhigherproductivitybetweenthecompanyandtheworkers.Thebasisuponwhichemployeesnotearningbonuseswillbepaid.Thetimingsofbonuspaymentsandthelapseoftimebeforepaymentsaremade.Thearrangements,ifany,toalleviatetheproblemsoflargefluctuationsinbonuspayments.ThemethodstobeusedtomaintaintheschemeandtoinformemployeesoftheirearningsAimsofBonusSchemesTheprincipalaimofabonusschemeistoprovideanincentiveandarewardforeffortandachievement.Executivebonusschemeslinkedtocompanyprofitscanalsoaimtomakeseniormanagersfeelthattheirpersonalprosperityislinkedtotheperformanceoftheircompanyorunit.Bonusschemesaresupplementarytobasicsalaryandaremostappropriatewheretheyapplytoentrepreneurialtypessuchaschiefexecutives,marketingmenandsalesstaffwho,itisassumed,willstriveformaterialreward,andwhoseresultsuponwhichtheirbonusdependscanbeclearlylinkedtotheirpersonaleffortsandachievements.BonusSchemesCriteriaTheamountoftheawardreceivedaftertaxshouldbesufficientlyhightoencouragestafftoacceptexactingtargetsandstandardsofperformance.Standardbonusesshouldnotbelessthan10%ofthebasicsalaryand,ifaneffectiveincentiveiswanted,thestandardbonusshouldbearound20%to30%ofsalaryTheincentiveshouldberelatedtoquantitativecriteriaoverwhichtheindividualhasasubstantialmeasureofcontrolTheschemeshouldbesensitiveenoughtoensurethatrewardsareproportionatetoachievementsTheindividualshouldbeabletocalculatetherewardhecangetforagivenlevelofachievementBonusSchemesCriteriaTheformulaforcalculatingthebonusandtheconditionsunderwhichitispaidshouldbeclearlydefinedConstraintsshouldbebuiltintotheschemewhichensurethatstaffcannotreceiveinflatedbonuseswhichmaynotreflecttheirowneffortsTheschemeshouldcontainprovisionsforaregularreview,say,everytwoorthreeyears,whichcouldresultinitsbeingchangedordiscontinuedTheschemeshouldbeeasytoadministerandunderstand,anditshouldbetailoredtomeettherequirementsofthecompanyExecutiveBonusSchemesThereareinnumerableformulaeforexecutivebonusschemes,andeachcompanymustadoptonewhichsuitsitsowncircumstances.ThesimplestformulaisforapercentageoutofnetprofitsbeforetaxtobepaidPro-Ratatotheexecutive’’sbasicsalary.Insomeschemes,dividendpaymentsandprovisionsforreservesaredeductedfromnetprofitsbeforethedistributionofbonusesandthereisusuallyanupperlimittotheamountofbonusthatcanbepaid.Theseschemesarecrudebutprovideadirectincentiveaslongasresultsaredirectlyinfluencedbytheactionsoftheexecutivesinthescheme.Theycangetoutofh
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