Variable Pay Plans.

 

Let´s examine the different types of variable-pay programs.

 

Piece-Rate Pay

The piece-rate pay plan has long been popular as a means of compensating production workers by paying fixed sum for each production completed. A pure piece-rate plan provides no base salary and pays employee only for what he or she produces.

 

Merit-Based Pay

A merit-based pay plan pays for individual performance based on performance appraisal ratings. A main advantage is that people thought to be high performers can be given bigger raises. If they are designed correctly, merit-based plans let individuals perceive a strong relationship between their pay and the rewards they receive.

 

Bonuses

An annual bonus is a significant component of total compensation for many jobs. The incentive effects of performance bonuses should be higher than those of merit pay because, rather than paying for performance years ago, bonuses reward recent performance.

 

Skill-Based Pay

Skill-based pay is an alternative to job-based pay that bases pay levels on how many skills employees have or how many jobs they can do. For employers, the lure of skill-based plans is that they increase the flexibility of the workforce: filling staffing needs is easier when employee skills are interchangeable. However, skill-based plans do not address level of performance. They deal only with whether someone can perform the skill.

 

Profit-sharing plans

A profit-sharing is an organization wide program that distributes compensation based on some established formula designed around a company´s profitability. Compensation can be direct cash outlays or, particularly for top-managers, allocation of stock options.

 

Gainsharing

Gainsharing is a formula-based group incentive plan that uses improvements in group productivity from one period to another determine the total amount of money allocated. Gainsharing is different from profit-sharing in that it ties rewards to productivity gains rather than profits. Employees in gainsharing plans receive incentive awards even when company is not profitable.

 

Employee Stock Ownership Plans

An employee stock ownership plan is a company-established benefit plan in which employees acquire stock, often at below-market prices, as part of their benefits.