(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).
(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< /p>
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.
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