Thursday, June 11, 2009

Under what conditions is a group incentive plan generally more appropriate than an individual incentive plan?

Under what conditions is a group incentive plan generally more appropriate than an individual incentive plan?

Group incentive plans
Individual and work group plans traditionally have rewarded performance by using output (often defined by piece rates) and quality measures. Quality is accounted for by a quality adjustment factor, say, a percentage of rework.
For example: Incentive pay = Total output .In recent years, skill development has also been rewarded. Sometimes called pay for knowledge, this means a worker is compensated for learning new tasks. This is particularly important in job shops using technology, as well as in banking, where supervisors' jobs require knowledge of new type of financial instruments and selling approaches.
AT&T, for example, instituted incentive programs for its managers- an individual incentive Award (IIA) and a Management Team Incentive Award (MTIA). The IIA provides lump-sum bonuses to outstanding performers; These outstanding performers arc determined by individual performance ratings accompanied by extensive documentation.
The lump-sum bonus can range between 15 and 3 On percent of base pay. MTIAS are granted to members of specific divisions or units. Appropriate division or unit goals are established at the beginning of the year. The goals include department service objectives and interdepartmental goals. A typical MTIA could call for a standard amount equivalent to 1.5 percent of wages plus overtime for the next years based on performance in the current year. Gain sharing also involves giving organisation v/ide bonuses, but it differs from profit sharing in two important respects. First, it typically measures controllable costs or units of outputs, not profits, in calculating a bonus. Second, gain sharing is always combined with a participative approach to management. The original and best - known gain-sharing plan is the Scanlon plan. Workers as a group were rewarded fr any reductions in labor cost within the firm.
The plan's success depended on comities of workers throughout the firm whose purpose was to search out areas for cost saving and to devise ways of improvement. There were many improvements, and the plan did, infact, save the company. Gain- sharing plans are now used by more than a thousand firms in the Us and Europe, and are growing in popularity. One survey in the Us indicated that about 13 percent of all firms have them, and that more than 70 percent were started after 1982.Thuogh originally established in small companies such as Lapionte, Lincoln Electric company, and Herman Miller, gain sharing has been installed by large firms such as TRW, General Electric, Motorola, and firestone. These companies apply gain sharing to organizational units, Motorola, for example, has virtually all its plant employees covered by gain - sharing. These plans are increasing because " they are more than just pay incentive plans; they are a participative approach to management and are often used as a way to install participative management".

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