The actual payment to employees for increased performance is truly one aspect that many managers may not understand, especially regarding how to get the most bang for their buck. For example, why give equal dollars to personnel with varying degrees of skills and responsibilities?
This payout article does not pertain to bonus programs. For many, knowing the difference between a bonus plan and an incentive program is still an issue, and there is a big difference between the two. To understand what entails an effective incentive, please refer to “Effective Incentive Programs for Every Group” on my newsletter Web page: http://todd-drummond.com/newsletter/
Any task should be viewed within the concept of keeping it simple. However, with the development of labor-tracking programs such as MiTek MVP™ and others, why not create reports that are complex in calculations but simple to understand? You could easily weigh the employee payouts that would benefit each person the most for their given responsibilities and skills. Then, with a simple push of a button, you have an automated incentive calculated payment report that you can use to get the most bang for each buck!
There are basically three different key options that must be decided. Here is a simplified breakdown you should consider when creating your group’s incentive report.
Should I include the negative results of projects as a negative for the total? What this means is that any group or individual that fails to meet the minimum for a given project has the negative results reduce the total payout by that negative amount (not recommended!). People cannot always meet the minimal, sometimes through no fault of their making. This will cause endless conflicts. If your company were to use this option, you would be creating a disincentive and a lot of negative emotions.
Basing the incentive payout on the cost of labor savings or efficiency ratings. Trying to explain the cost-of-labor savings to employees on a job-by-job basis can be convoluted at best. Also, a discussion of labor cost savings opens the door for arguing about pay rates versus estimated bidding labor costs. However, showing a consistently expected efficiency rating, such as time standards, has proven time and again to be the easier concept for understanding and acceptance. Think of time standards as you would a speed odometer showing expected minutes versus actual. The faster, the better, and it’s very easy to understand. (refer to the incentive article mentioned above).
Weighted towards employee pay rates. Let’s assume you have $100 to divide between three personnel who completed numerous batch runs on the assembly table as a single build team. Do you divide it up equally between all three, or would you rather offer more to the leader? All groups of people have higher skilled personnel with more responsibilities; they are normally paid more per hour, so why not offer them a higher percentage of the pie? How would this be done in a generated report? Simply weigh it based on employee pay rates, and those who are paid more per hour would retain a higher percentage of the payout. The math is complicated but easily doable via a computer-generated report.
TDC’s recommended incentive report payout is based on efficiency ratings that are derived from time standards and weighted to higher employee pay rates. In addition, TDC absolutely does not recommend using negative results counted against their totals. By far, your employees will find this to be the most rewarding program you could offer for higher performance.
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