Ch 10 Contingent pay schemes

Contingent pay

•It is any form of financial reward that is added to the base rate or paid as a cash bonus and is related to performance, competence, skill or service.

•It is also called as variable pay.

Objective of contingency pay1. It acts as a motivator2. It encourages and supports desired behaviors3. It delivers the message that performance,

competence, contribution, and skills are importance.

4. It provides a means for defining and agreeing performance and competence expectations.

5. It can reinforce the organizations value.6. It helps in achieving culture change by

assisting the development of a performance culture.

Objective of contingency pay

•7. it increases productivity•8. It provides customer satisfaction

Criteria for success

1. Effect- performance-Result – Measures – Pay out.

2. Reward should be clear3. Fair and consistent4. It should be meaningful5. People should develop there skill.6. Reward should be done accurately.

Problems with contingent pay plans

1. Poor performance system2. Rewards are not considered significant : as

many times there is a very difference between outstanding and poor performance. 12- 15 % inc in reward is meaning.

3. Managers are not accountable4. There exists extrinsic motivation at the

expense of intrinsic motivation : only money decreases motivation.

5. Reward of executives is large compared to others

Types of Scheme

1. Performance related pay2. Contribution related pay3. Competency related pay4. Skill based pay

1. Performance related pay

•Offers individual in increase in pay/ cash bonuses which is linked with performance.

•Thus high performer should get more than low performer.

•Employer cannot pay same amount to everyone at same job.

Objective of PRP

1. Encourage high performance by linking to pay

2. Increase high performance culture.3. Creates notion of equity or fairness.

Methods of operating PRP

1. Performance appraisal2. Objective setting3. Review performance4. Measure performance5. Determine award

Conditions for successful PRP

1. Proper linking of PM and reward2. Tailoring organizational needs3. Balancing PRP- input and output factors

of work.4. Flexibility- if not inc in salary than give

lump sum amount.5. Teamwork 6. Long term based7. Involve employees in designing of PRP.

2. Contribution related pay

•Contribution related pay recognized that people should be rewarded for both the quality of their inputs( ability) and the level of their achievements ( output)

CONTRIBUTION PAY: SEPARATE OUTPUT AND COMPETENCE CRITERIA FOR BONUS AND CONSOLIDATED PAY INCREASES

Bonus

Salary

Output

Competence

This resource is part of a range offered free to academics and/or students using Armstrong’s Handbook of Reward Management Practice, 3rd edition, as part of their course. For more academic resources and other FREE material, please visit www.koganpage.com/resources and then click on Academic Resources.

This resource is part of a range offered free to academics and/or students using Armstrong’s Handbook of Reward Management Practice, 3rd edition, as part of their course. For more academic resources and other FREE material, please visit www.koganpage.com/resources and then click on Academic Resources.

CONTRIBUTION-RELATED PAY MODEL (2)

Paying for past performance

Paying for future success

Results Competence

Paying for contribution

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+

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3. Competency related pay

•It rewards people for what they are capable of doing, not for results over which they might have little control.

4. Skill Based pay

•Rewarding individual based on number, type, depth ,skills acquired, mastered and applied.

•See level of knowledge of what they are capable of doing.

•People of varied skill are generally perform multiple role.

•Develop broader understanding.

4 types of skill

1. Horizontal skill : department to department

2. Vertical skill : acquiring skill of higher level within single job.

3. Depth job : acquiring high level of skill in specialized area

4. Basic skill : developing expertise in basic area – language, maths, etc

Objective of skill based pay

1. Raise the skill base : 2. Flexibility : transfer through inter

department.3. Operating with a leaner workforce :

learning group.

Steps in skill based pay

1. Determination of skills needed by organization

2. Creating skill blocks- collection of task, duties and responsibility.

3. Pricing and progression through skill blocks

4. Skill certification- work test , assessment etc.

5. Identification of training needs.

Prepared by : Ms. Shirufi Daruwala