(i) Individual Incentive
There are three types of
incentives namely: Individual, group, and organizational wide incentives. As
already noted, incentive payment is an element of linking pay with performance
of employees, they are usually referred to as pay for result.
Performance Related Pay (PRP) is
a pay scheme based on the employees achievement of a agreed objective. In
course of this study, we are going to discuss many of them in detail.
(ii) Piece-Rate: This rewards employees for meeting
work-related performance standards such as quality, productivity, customer
satisfaction, safety, attendance etc. (Martocchio, 1998). Among the individual
incentive is piece rate.
According to Martocchio
(1998:109):
Companies use piece rate plans when the time
to produce
a unit is relatively short, usually less
than 15
minutes, and the cycle repeats continuously.
Piece rate
plans are usually found in manufacturing
industries
such as textiles and others.
Under piece rate, there is low
rate pay below the standard, and a higher rate for output above standard.
Cynthia, Schoenfeldt and Shaw
(2007) noted that: piece rate incentive is the most common form of individual
enticement for production worker, stating that employees are paid a fixed rate
for each unit of output produced. According to them the amount paid per unit
output is determined as follows: First, the typical pay rate for the job is
determined, probably by a wage survey. The typical output per day is measured.
A major shortcoming of a typical
piece rate incentive is that it sends a wrong signal. Instead of suggesting a
partnership between the goals of the individuals and those of the organization,
it implies that the organization actually distrusts the individual. Sequel to
this, piece rate system is likely to encourage behaviour opposite those sought.
Grobler et:al (2007) identified
two types of incentives, namely: straight piece work plan, which has a fixed or
standard rate of pay for each unit of output and raising and falling
differentials, with failing piece rate, any gain is shared between the employer
and employee, example, instead of the worker to collect N50 for exceeding the standard rate by 5 items, the worker and the
employer would split it according to a previously agreed standard.
Armstrong (2006) defined piece
work as bonus directly related to output. He stated that a piece rate method of
payment is more conveniently applied in work involving unit production and
controlled by the person; example: agriculture, garment manufacture etc.
Many of the incentive plans,
aimed at increasing the motivation of employees, often fail to have the desired
impact. This is due to several reasons, most of which become obvious when it is
considered that for motivation to take place, the worker must believe that his
effort will lead to rewards and that he must want that reward.
(ii) Pay for Knowledge and skill: This is reward system that pays
employees on the basis of the work related skills they possess rather than
associating rewards with Performance level or seniority.
Although a creative approach to
reward, skill-based pay is not for everyone (Nadal 2001). However, the skill or
knowledge based pay may not be the best reward system, because the
judgement of those determining
who and what to pay may be lopsided, thereby rewarding the wrong person.
According to Dantio (2001) those
companies that adopt skill based pay, part of their reason for its popularity
lies in what it indicates to the employees. The reasons according to him are:
- It is associated with work teams or self managed work group
- It is prevalent in organizations committed to egalitarian principles-high involvement or all-salaries work force.
- It is embraced by reorganized organization that have adopted a broadened conceptualization of the job and
- It is associated with organization seeking employee involvement through total quality, continuous improvement, and similar initiatives.
According to Filipowski (1992);
pay-for-knowledge plan rewards managerial, services or professional workers for
successfully learning specific curricula. Both skill and knowledge-based pay
programmes reward employees for the range, depth, and types of skills or
knowledge they are capable of applying productively to their jobs. This feature
distinguishes pay-for-knowledge plan from merit pay, which rewards employees’
job performance.
In other words, pay-for-knowledge
rewards employees for their potential to make meaningful contribution on the
job.
According to Grobler, et:al: (2007 : 363);
Skills-based pay is an:
Approach that concentrates on paying workers
according
to their proficiency in learning and
using a
wide variety of skills that organizations
need.
Skill-based pay consists of
formal systems of cross-training, with financial rewards linked directly to
acquiring more knowledge and skills.
However, Tower Perrin, A Human
Resource Management (HRM) Consulting Firm in the United States of America (
USA) said in a report that three out of four companies implementing
skills-based systems saw their pay rates exceed applicable market rates (Hill 1993, Rissman 1995).
Cira and Benjamin (1998) averred
that skills-based or knowledge based reward differs from the traditional
emphasis on specializing in one function or the narrow perspective of
protecting one’s turf, with little regard to the harm it might cause another
department. He identified five types of skill-based pay plans as follows:
- Vertical skill plans, which measure the acquisition of input/output skills (e.g, a drill press operator mastering preventive maintenance and in-process inspection) within a single job.
- Horizontal skill plans, which reward the acquisition of complementary skills (e.g. clerk learns how to do both accounts payable and account receivable) across several jobs.
- Departmental skill plans that reward skill specialization (e.g. a computer programmer specializing in data base programming).
- Basic skill plans, reward employees for developing expertise in basic skill area (e.g. four-function maths, reading, writing and speaking English).
- Combination plans, reward any of the skills previously discussed (Moris,1996, Carrell et:al; 2000).
The potential advantage of skill or
knowledge-based pay is that it can significantly, affect the reward culture
within an organization, so that individuals will no longer be paid simply for
moving up a job hierarchy, but will be paid for the skills they acquire and for
developing themselves (Davis, 1997).
In support of the above,
Armstrong (2006:718) explains as follow:
Skill-based pay provides employees with a
direct link between their pay progression
and
the skills they have acquired and can use
effectively. It focuses on what skills the
business wants to pay for and what employees
must do to demonstrate them. It is therefore
a people-based rather than a job-based approach
to pay)
Skill based rewards are related
to individual’s ability to apply a wider range or higher level of skills to
different jobs or tasks. The broad equivalent of skill-based pay for managerial
professional and administrative staff and knowledge workers is
competence-related pay, which refers to expected behaviour as well as often, to
knowledge and skill requirement.
According to International
Recruitment Survey (2003), skill based pay is becoming a good deal more common
among British employers. It is particularly prevalent as means of rewarding
technical staff.
Besides all the many advantages
of skill-based pay, one of its major disadvantages is that it is associated
with skills obsolescence. Where a business operates in a fast moving
environment and needs to adapt its technology regularly, a skill based payment
system can leave the organization paying enhanced salaries for skills which are
no longer significant or are not required at all. Employers seeking to
introduce skill-based systems of payment therefore need to consider the
implications very carefully and must ensure that they only reward the
acquisitions of those skills which will clearly contributes to increased
productivity over the long term.
Skills-based pay is an
alternative to job-based pay. Rather than having individual’s job title
defined; his or her pay category, skill-based pay sets pay levels on the basis
of how many skills employees have or how many jobs they can do. (Ledford, 1995,
Murray and Gerhard 1998, Thomson and Lehew
2000, Shaw, Gupta, Mitra and Ledford Jr, 2005).
A number of studies have
investigated the use and the effectiveness of skill based pay. The overall
conclusion, based on these studies, is that skill-based pay is expanding and
that it generally leads to higher employee performance, satisfaction and
perceptions of fairness in pay system. (Lawler III, Mohammed, Ledford Jr. 1995,
Lee, Law and Bobko 1999, and Podolske 1999).
One major disadvantage of skill
based pay is that hourly labour costs, training costs, and overhead costs can
increase. Hourly labour costs often increase because greater skill should
translate into higher pay levels for the majority of workers.
(iii) Seniority pay: Seniority pay or longevity pay system reward
employees with periodic additions to base pay according to employees length of
service (Heneman 1992). Seniority pay is based on the assumption that
“employees become more valuable to an
organization with time and that valued employees will leave, if they do not
have a clear idea that their
salaries will progress over
time”. In order words, seniority pay is based on the believe that the longer an
employee stays in an organization, the more productive and useful he becomes to
the organization.
According to Cynthia, et:al: (2007: 572):
When based on seniority pay increases depend
solely on
the employee’s experience or length
or service
on the job individuals all start out with
with equal
pay and then progress through steps
with each year of services. In addition to
step
increase, the entire range ( i.e. the entry
rate and
each of the steps) is adjusted to reflect
the results
of surveys and economic trends.
Seniority based pay system rewards a stable, experiences
workforce. This system is more conversant the practice in a unionized
organization, when employees do not accept or trust the concept of merit pay,
when differences in performance are difficult to measure accurately or when
jobs call for very similar work performance or output. Seniority pay may be
advantageous to the extent that employees perceive it as an objective standard.
One disadvantage, though, is that top performance may get the same raises as
poor ones (Dessler, 2007).
Seniority pay favours poor performers, as they rely on the
fact that when there is an increase it would favour every employee. To this
end, they idle out the time, while others are working hard to earn their
income. Due to the severity of the depressed economic conditions that started
in 1929, President Franklin D. Roosevelt of United State of America advocated
for policies designed to improved workers’ economic status, in reaction to
this, Congress instituted the National Labour Relations Act (NLRA) in 1935 to
protect worker’s rights, predicated on fundamental but limited conflict of
interest between workers and employers. This is said to be the beginning of
seniority pay.
(iv) Paid Time Off:
Employees expect and are paid for holidays, vacations and
miscellaneous
days they do not work-paid time off work. The most common
examples of time off with pay are:
v
Public holidays
v
Sick leave
v
Study leave
v
Maternity leave
v
Vacations
v
Sporting leave
v
Sabastical leave
v
Time off to vote etc (Henderson, 1979 and Mathis
1992).
Pay for time not worked, is one
of the major cost centres for any organization, this is because at these times
the employee does not contribute anything to the output of the organization.
In support of the above view,
Dessler(2007:479) posits that:
Pay for time not worked-also called
supplemental
pay
benefits-is one of an employer’s most costly
benefits,
because of the large amount of time off
that many
employees receive. He further noted
that “common time off with pay periods
include
holidays, vacations, jury duty, funeral
leave, military
duty, personal days, sick leave, sabastical
leave,
maternity leave …”
According to Mathis (1992), the
number of paid employee vocation day varies considerably from employer to
employer.
In Nigeria, there are many
holidays recognized by both government and private companies and as a matter of
policy are paid holidays by organizations. These holidays include:
v
Christmas day and boxing day
v
Edel Kabir and E’del Malude
v
Easter holiday
v
May day (Labour day)
v
Democracy day etc.
However, one of the major tasks
facing the Human Resource manager is to decide among all the holidays, how many
days off employees will get and what (if any) the paid holiday will be. Other
decisions are: Will employees get their regular base pay while on vacation, or
vacation
pay based on average earning
(which may include over-time)? Will we pay employees for a holiday if they
don’t come to work the day before and the day after the holiday and should we
pay some premium; such as time and a half, when employees must work on
holidays?
Sick leave provides pay to
employees when they are out of work due to illness. Most sick leave policies
grant full pay for a specified number of sick days: usually up to about 12 days
per year. Sick leave pay causes difficulty for many employers. The problem is
that while many employee’s use sick days only when they are legitimately sick,
others use sick leave as extensions to vacation, whether they are sick or not.
A survey by USA Compensation and Benefits Review (2003) found that the average
cost of absenteeism per employee per year was $789 in 2002 with personal
illness accounting for about a third of the absence.
Many organizations now use pooled
paid leave plans. These plans lump together sick leave, vacations, and holiday
into a single leave pool. According to Bureau of National Affairs (2002), “the
use of sick leave grew from 21% of firms surveyed in 1997 to 66% in 2002”.
As earlier said, employers encure
a lot of cost as a result of paid sick leave that had led to the introduction
of pooled paid leave plan as a way of reducing costs.
However, paid sick leave serves
as a relief to the employees, as they use the pay to take care of themselves,
it also serves as a motivator and spores employees to work harder and also
attracts employee loyalty to the organization.