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What differentiates variable-pay plans from more traditional programs is that a
person is not paid for time on the job or seniority. Variable pay is probably most
compatible with expectancy theory. Workers should perceive a strong performance-
rewards relationship if motivation is to be maximized. This type of pay plan is
attractive to management since it turns part of an organization
抯 fixed labor costs
into a variable cost, thus reducing expenses if performance declines.
In piece-rate pay plans, workers are paid a fixed sum for each production unit that is
completed. In a pure piece-rate plan, a worker gets no base salary and is paid only
for what he or she produces. In a modified piece-rate plan, a worker gets a base
hourly wage plus a piece-rate differential. Bonuses can be paid to executives for
improving the company
抯 financial fortunes or to all employees based on how
much a company earns on its cost of investment capital. Profit-sharing plans are
organization-wide programs which distribute compensation based on some
established formula designed around a company
抯 profitability. Gainsharing is a
formula-based group incentive plan. Improvements in group productivity from one
period to the next determine the total amount of money to be allocated. The savings
that are generated by improved productivity are split between the company and the
employees.