16  Individual, group, and team compensation

16.1 Individual Incentive Plans

Individual incentive plans reward employees based on their personal performance. Common types include:

  1. Piece Work – Employees are paid based on the number of units produced.
    • Example: A factory worker earns $2 per assembled unit.
  2. Standard Hour Plan – Employees are rewarded for completing tasks in less than the standard time.
    • Example: A mechanic is paid for 2 hours even if they complete a repair in 1.5 hours.
  3. Bonuses – Lump-sum payments based on performance beyond normal expectations.
    • Example: A salesperson receives a $500 bonus for exceeding sales targets.
  4. Merit Pay – A permanent salary increase based on performance evaluations.
    • Example: A high-performing employee gets a 5% salary raise.

16.2 Group Incentive Plans

Group incentives reward teams or departments based on collective performance. Common plans include:

  1. Team Compensation – Rewards shared among team members based on team achievements.
    • Example: A project team gets a shared bonus for completing a project ahead of schedule.
  2. Gainsharing – Employees receive a portion of cost savings resulting from improved productivity.
    • Example: A manufacturing team gets a percentage of reduced waste savings.
  3. Profit Sharing – Employees receive a share of the company’s profits based on predefined criteria.
    • Example: A company distributes 10% of annual profits among employees.

16.3 Gainsharing Incentive Plans

Gainsharing is a group incentive plan that rewards employees for improving productivity, efficiency, or cost savings. It fosters collaboration and encourages employees to contribute ideas for operational improvements.

  • How It Works: A percentage of cost savings or productivity gains is shared with employees.
  • Example: A manufacturing company reduces waste by 15%, saving $100,000. Employees receive a share of the savings.
  • Common Gainsharing Plans:
    • Scanlon Plan – Encourages employee participation in cost-saving ideas.
    • Rucker Plan – Rewards employees based on a value-added formula.
    • Improshare (Improved Productivity through Sharing) – Focuses on increased productivity.