Question

1) Discuss the trends that are leading to the increased interest in variable pay.

2) Why do companies prefer merit bonuses over merit pay increases?

3) Discuss the plans that provide for variable incentives linked to a standard expressed as a time period per unit of production.

4) Briefly explain the concept of sales value of production (SVOP).

5) What is the difference between success-sharing plans and risk-sharing plans?

Answer 1

1. Series of factors are responsible for the increasing reliance on variable pay. These factors are extremely effective in attracting employee attention towards key company goals and initiatives since a part of their compensation is linked to the results.

(a). Plan Funding

One of the most important changes in pay over the past few decades have been a change in pay mix – primarily contributing towards the emergence of broad-based variable pay. Variable pay spending became important enough to track in the beginning in 1988 when average increase in salary was 5% and variable pay spending was lower than 4%. In a few years, variable pay spending overtook salary increase spending

(b) Plan Designs type

The variable pays design criteria undertaken by organizations also changed dramatically since these plans first appeared in the late 1980s. The early plan designs were more focused towards organizational measures and rewards. As a result, it made the plans easier to design and introduce. It was very common for the employees to be given a cash profit sharing plan, a gainsharing plan or a team award incentive. Plan designs have shifted towards the areas that have much lower collective measures and aim to instil greater metrics granularity and create stronger line of sight

(c). Plan Eligibility

Variable pay plans have undergone a huge change. Due to the same the number of U.S. companies that have added Variable pay arrangements have grown largely. The eligibility of Variable pay has been properly established into organizations.