Salesforce Compensation

Key Points

1. Determining individual pay involves asking the question, "How should one employee be paid relative to another doing the same job?"

2. Methods of payment include (a) flat rates and (b) pay for time worked (wages and salaries).

3. There is a growing realization that traditional pay systems do not effectively link pay to performance. The trend is toward a total compensation approach made up of base pay, variable pay, and indirect pay or benefits.

4. Flexibility is an essential ingredient in any compensation plan and can be built using a variable pay approach.

5. Methods for paying employees on the basis of outcome are usually referred to as incentive forms of pay. These include merit pay, individual incentives, team incentives, and organizationwide incentives.

6. The most widely used plan for managing individual performance is merit pay.

7. Individual incentives pay the employee on the basis of units produced or dollar value of sales. Methods include straight piecework, standard-hour plan, differential piece rate (Taylor plan), commission, and production bonus systems.

8. Team incentives are used to build a team culture, with rewards provided on a group basis.

9. Organizationwide incentives, where rewards are based on shared profits generated through employees' efforts or on money saved as a result of employees' efforts to reduce costs, are the most common incentive pay system.

10. Suggestion systems can improve employee relations, foster high-quality products, reduce costs, and increase revenue.

11. Gainsharing incentive plans, including the Lincoln Electric plan, Scanlon plan Rucker plan, ImproShare, business plan gainsharing, and winsharing, are companywide group incentive plans that unite employees to improve organizational effectiveness through a financial formula for distributing organizationwide gains.

12. Spot gainsharing plans focus on a specific problem in a specific department rather than on improving performance throughout the whole organization.

13. The most critical factor in the success of any gainsharing plan is employee involvement.

14. Profit-sharing plans distribute a fixed percentage of total organizational profit to employees in the form of cash or deferred bonuses.

15. Person-based pay designs like skill-based, knowledge-based, credential-based, feedback, and competency-based pay are alternatives to job-based pay that set pay levels on the basis of how many skills an employee has, how much knowledge an employee acquires, and so on.

16. CEO pay is a very important consideration in designing comparative-performance reward packages that are fair to all employees.

17. Managers make policy decisions on three compensation administration issues: pay secrecy, pay security, and pay compression.

Key Terms

Students will be introduced to the following key terms:

commission A commission is compensation based on a percentage of sales in units or dollars.

competency-based pay A combination of skill-based, knowledge-based, and credential-based pay.

cost-of-living adjustment (COLA) Wage increase or decrease pegged to the rise and fall in the cost-of-living index.

differential piece rate (Taylor plan) A piecework plan that pays on the basis of two separate piecework rates: one for those who produce below or up to standard and another for those who produce above standard.

feedback pay Based on aligning pay with strategic business objectives and then establishing a direct connection between the job holder and his or her part in accomplishing these goals.

gainsharing plans Companywide group incentive plans that, through a financial formula for distributing organizationwide gains, unite diverse organizational elements in the common pursuit of improved organizational effectiveness.

guaranteed annual wage (GAW) A plan in which the employer guarantees the employee a certain number of weeks of work at a certain wage after the worker has passed a probation period.

knowledge-based pay Knowledge-based pay rewards employees for acquiring additional knowledge both within the current job and in new job categories.

merit pay Individual pay increases based on the rated performance of the individual employee in a previous time period.

open system A pay system where pay ranges and even an individual's pay are open to the public and fellow employees.

pay compression A situation in which employees perceive too narrow a difference between their own pay and that of their colleagues.

production bonus system An individual incentive system that pays an employee an hourly rate plus a bonus when the employee exceeds the standard.

profit sharing plans Profit-sharing plans distribute a fixed percentage of total organizational profit to employees in the form of cash-deferred bonus amounts.

salary Pay calculated at an annual or monthly rate rather than hourly.

secret system A compensation system where pay is regarded as privileged information known only to the employee, the supervisor, and staff employees such as HRM and payroll.

severance pay An income bridge from employment to unemployment and back to employment, provided by some employers.

skill-based pay An alternative to job-based pay that sets pay levels on the basis of how many skills employees have or how many jobs they can do.

spot gainsharing A gainsharing system that focuses on a specific problem in a specific department rather than on performance improvements for the whole organization.

standard-hour plan An individual incentive plan that sets wages on the basis of completion of the job or task in some expected period of time.

straight piecework An individual incentive plan where pay fluctuates on the basis of units of production per time period.

suggestion system A formal method of obtaining employees' advice for improvement in organizational