bonus - compensation management - manu melwin joy
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BonusCompensation Management
Prepared By
Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations.
Manu Melwin JoyAssistant Professor
Ilahia School of Management Studies
Kerala, India.Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com
Bonus• Bonus pay is compensation
over and above the amount of pay specified as a base salary or hourly rate of pay. The base amount of compensation is specified in the employee offer letter, in the employee personnel file, or in a contract.
Bonus• Bonus pay can be distributed
randomly as the company can afford to pay a bonus, or the amount of the bonus pay can be specified by contract. Bonus pay that is specified by contract is used most frequently to reward executives.
Bonus
• While employees might wish
that executive bonus
payments were tied to
performance results, this is
not always the case.
Bonus• A structure of bonus
payments is frequently found in sales organizations to reward sales performance at specified levels over and above commission. Some sales organizations reward employees with bonus pay without commission.
Bonus
• Bonus pay is used by many
organizations as a thank you
to employees or a team that
achieves significant goals.
Bonus pay is also used to
improve employee morale,
motivation, and productivity.
Bonus• As long as bonus pay is
discretionary by the
employer, it is not
considered to be a contract.
If the employer promises a
bonus, however, the
employer may be legally
liable to pay the bonus.
Types of BonusCompensation Management
Current Profit SharingCompensation Management
Current Profit Sharing• One very basic type of
bonus program is current profit sharing. A company sets aside a predetermined amount, usually between 2.5 and 7.5 percent of payroll but sometimes as high as 15 percent, as a bonus on top of base salary.
Current Profit Sharing• Such bonuses depend on
company profits, either the entire company's profitability or from a given line of business. Sometimes the bonuses are given across the board, and sometimes they are given in larger percentages of compensation the more someone makes.
Current Profit Sharing• Profit sharing refers to various
incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.
Current Profit Sharing
• The profit sharing plans are
based on predetermined
economic sharing rules that
define the split of gains
between the company as a
principal and the employee
as an agent
Current Profit Sharing• For example, suppose the
profits are x, which might be a random variable. Before knowing the profits, the principal and agent might agree on a sharing rule s(x). Here, the agent will receive s(x) and the principal will receive the residual gain x-s(x).
Current Profit Sharing
• The purpose of profit sharing
bonuses is to encourage
employees to understand
how their work affects the
company's performance and
to improve the company's
profitability.
Current Profit Sharing
• Learn how your company
makes money and how your
position can help it make
more. The annual report and
other statements will give
you an idea of how the
company is performing.
Current Profit Sharing
• It will also make you look
good to your manager if
you show an interest in
the company's
performance.
Gain SharingCompensation Management
Gain Sharing• Gain sharing is a system of
management used by a business to increase profitability by motivating employees to improve their performance through involvement and participation. As their performance improves, employees share financially in the gain (improvement).
Gain Sharing
• Gainsharing’s goal is to
improve performance and
eliminate waste (time,
energy, and materials) by
motivating employees to
work smarter as a team
rather than just working
harder.
Gain Sharing• There are two important
parts of a Gain sharing system. One is a bonus calculation. The second is a structured system for employee involvement. Because of these two parts, Gain sharing is best seen as an "organizational development" tool.
Gain Sharing
• This type of bonus program
is most common in
manufacturing plants and is
designed to reward
productivity and improved
product quality.
Gain Sharing
• Gain sharing works best when
employees become responsible
for production quantity and
quality and are encouraged to
improve the way the product is
made. This program reflects a
philosophy that employees
know their job best.
Gain Sharing
• Gain sharing programs pay
out bonuses for statistical
improvements in production
and quality on a quarterly or
sometimes monthly basis,
providing a sense of
excitement for participants.
Gain Sharing
• These programs are often
very successful, transforming
the manufacturing plant into
a center of employee
commitment.
Employee Stock OptionCompensation Management
Employee Stock Option• An employee stock
option (ESO) is commonly viewed as a complex call option on the common stock of a company, granted by the company to an employee as part of the employee's remuneration package
Employee Stock Option
• Many companies use
employee stock options
plans to retain and attract
employees, the objective
being to give employees an
incentive to behave in ways
that will boost the
company's stock price.
Employee Stock Option
• If the company's stock
market price rises above the
call price, the employee
could exercise the option,
pay the exercise price and
would be issued with
ordinary shares in the
company,
Employee Stock Option
• The employee would
experience a direct financial
benefit of the difference
between the market and the
exercise prices.
Employee Stock Option
• If the market price falls
below the stock exercise
price at the time near
expiration, the employee is
not obligated to exercise the
option, in which case the
option will lapse.
Employee Stock Option
• Another substantial reason
that companies issue
employee stock options as
compensation is to preserve
and generate cash flow.
Employee Stock Option
• The cash flow comes when
the company issues new
shares and receives the
exercise price and receives a
tax deduction equal to the
"intrinsic value" of the ESOs
when exercised.
Employee Stock Option• Employee stock options are
mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation
Employee Stock Option• Employee stock options are
mostly offered to management as part of their executive compensation package. They may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation
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