What are the different types of pay for rewarding individual performance?
What will be an ideal response?
Organizations may reward individual performance with incentives such as piecework rates, standard hour plans, merit pay, individual bonuses, and sales commissions. Piecework rates: As an incentive to work efficiently, some organizations pay production workers a piecework rate, a wage based on the amount they produce. The amount paid per unit is set at a level that rewards employees for above-average production volume. Under the straight piecework plan, the employer pays the same rate per piece, no matter how much the worker produces. Under differential piece rates, the piece rate depends on the amount produced. If the worker produces more than the standard output, the piece rate is higher. If the worker produces at or below the standard, the amount paid per piece is lower. This type of incentive is most suited for very routine, standardized jobs with output that is easy to measure. Standard hour plans: Another quantity-oriented incentive for production workers is the standard hour plan, an incentive plan that pays workers extra for work done in less than a preset "standard time." They encourage employees to work as fast as they can, but not necessarily to care about the quality or customer service. Also, they succeed only if employees want the extra money more than they want to work at a pace that feels comfortable.
Merit pay: Merit pay links pay increases to ratings on performance appraisals and the employee's compa-ratio, his/her pay relative to average pay. Thus, the system gives the biggest pay increases to the best performers and to those whose pay is relatively low for their job. Advantages include the fact that rewards are made more valuable by relating them to economic conditions and that they provide a method for rewarding performance in all of the dimensions measured in the organization's performance management system. Disadvantages include the fact that they can, from the employer's standpoint, quickly become very expensive and they may be viewed by employees as unfair if superior performance ratings are based on factors other than employee ability and motivation.
Performance bonuses: Like merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay. In some cases, the bonus is a one-time reward. Bonuses can be linked to objective performance measures, rather than subjective ratings, and they allow organizations great flexibility in deciding what kinds of behavior to reward and whether such rewards will be one-time or ongoing. Sales commissions: Commissions are calculated as a percentage of sales. Some salespeople earn a commission in addition to a base salary; others earn only a commission, a pay arrangement called a straight commission plan. Paying most or all of a salesperson's compensation in the form of salary frees the salesperson to focus on developing customer goodwill, while paying most or all of a salesperson's compensation in the form of commissions encourages the salesperson to focus on closing sales.
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