Performance and Management

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Phase III: Performance and Management
A. Policy For Recognizing Employee Contributions

The purpose of this report is to use the compensation system we previously developed in Phases I and II to pay people, develop plans that reward performance, add benefits into the mix, and evaluate these results. First we will look at performance-based-pay as a policy for recognizing employee contributions. Performance-based-pay is a pay plan that varies with some measure of individual or organizational performance, such as merit pay, lump-sum bonus plans, skill-based pay, incentive plans, variable pay plans, risk sharing, and success sharing. It is basically a pay plan that moves away from the traditional base pay and across-the-board increases, and focuses more on factors of performance that can increase overall productivity for a company. Performance-based-pay plans can be very effective in creating a positive impact in performance of both employees and a company as a whole, but only is the plan is designed well. In order to be successful, it is crucial that the performance-pay plan be designed to support FastCat’s business strategy and compensation objectives. To design this pay-for-performance plan, we will recommend a specific policy plan that is tailored to FastCat’s goals towards success. We will compare different performance-based plans, which include individual vs. group incentives and merit vs. incentive pay, to see which combinations will help FastCat compete more effectively. a. Emphasis on Individual vs. Group Incentives

Two strategies to consider with performance-based-pay plans are providing individual incentives, group incentives, or both. Individual incentive plans involve incentive compensation that is tied directly to objective measures of individual production. On the other hand, group incentive plans are incentive plans that are based on some measure of group performance rather than individual performance. Taking data on a past year as a base, group incentive plans may focus on cost savings or on profit increases as the standard for distributing a portion of the accrued funds among relevant employees. We recommend a mixture of both individual incentive and group incentive pay plans. How the individual incentive plan will work is there will be a year-end bonus pool as function of company performance. The employee’s share in the pool will be based on three factors: (1) employee’s grade, (2) employees personal performance analysis, (3) employee’s tenure at the company. This plan will go hand-in-hand with the group incentive plan we recommend, which will be a profit-sharing plan. A profit-sharing plan is a plan that focuses on profitability as the standard for group incentive. This group incentive plan will encourage employees to work hard as a team to create better company performance overall. We used the balanced scorecard approach to measure the company’s performance. A balanced scorecard approach is a way to look at what contributes value in an organization. It is a corporate-wide overall performance measure typically incorporating financial results, process improvements, customer service, and innovation. We determined that there are eight main elements that must be measured to determine good company performance. These metrics, which are weighted differently based on importance to FastCat’s business strategy, are as follows: (1) revenue growth, (2) labor costs, (3) innovation, (4) customers see FastCat representatives as responsive and knowledgeable, (5) customers value FastCat solutions, (6) employees take pride in working for FastCat, (7) employees have the tools and support to do their jobs, (8) employees understand how to make teams successful. In essence, the individual incentive plan and the group incentive plan work together to increase both individual performance and company performance. The better the company performs based on the balanced scorecard approach, the more money there is for the bonus pool...
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