Successful Examples of companies that use pay for performance (IKEA & PepsiCo)
How Businesses Use “Pay for Performance”
Pay for performance is considered to be one of the best practices which will help to motivate the employees of the company, to do their best on their job. Pay for performance is what the employees receive in exchange for contributing to the company. Without the right kind of pay for performance, the current employees are very likely to leave. The outcomes regarding to pay dissatisfaction can be extremely harmful to productivity and can also disrupt the quality of work environment.
If worse comes to worst, pay dissatisfaction is able to decrease the performance of the employees, which in return may lead to strikes which will cause grievances and these grievances will eventually cause physical or psychological withdrawal ranging from absenteeism and turnover. Therefore it is every important for accompany to keep a track of their employee’s performance and then provide him or her with an incentive. For example, the company can use the following grade chart to measure the employee’s performance, it is as follows.
Successful Examples of How Businesses Use “Pay for Performance” Bonuses Incentives actually supplement the more traditional wage and salary approaches, with account to the majority of compensation costs. Pay for performance has now become a trend in compensation management which helps to motivate the employees. There are great deals of companies or businesses now use rewards as well, i. e. they tie the rewards with the performance in form of one time bonuses. (Milkovich, Wigdor & National Research Council, 77)
For example, at IKEA employee motivation is considered important when an organization is building relationships for better communication with their employees. IKEA once conducted a special bonus for its employees by pledging the entire day’s sales revenue for its employees. That day the sales were doubled and all the employees received $2400 each. This reward was considered to be an anticipated reward and in this case scenario all the employees of IKEA wanted to be rewarded for doing a good job.
And when this happens it is the management’s responsibility to reward the employees, which in this case IKEA did. IKEA made sure that all the employees receive the reward in the form of cash; this helped the employees to perform better in the future as well. (IKEA) Another example, when General Electric built a new factory in 1990, in Bayamon, Puerto Rico, to mass produce surge protectors. At that time besides the plant manager, the factory had two board job categories, about 200 associates’ producers and 15 salaried advisers.
Twice a year the associates switch to different job tasks and are required to sign up for the appropriate vocational courses. As the employees gain proficiency and knowledge in their new tasks, they are paid for the skills they have acquired. Subsequently, the workforce evolves into a team capable of performing all operative job tasks in the business. The end result of this was that the aggregate of the two classifications, the compensation plan and educational program have elevated the Bayamon employees to one of the most productive workforce on the planet.
And in the first year of the production the workforce was 20 percent more productive. What happened in this case scenario GE linked the wages and salaries are linked with pay for skills, this way the employees have an incentive to pursue vocational training. Stock Options Stock options are also considered to be one way to motivate employees. Stock options are now considered to be one of the ways the management can pay the employees for their performance. The most common factor ion most executives plans is their relation to the performance of the organization.
For example, in PepsiCo stock options equal to 10 percent of compensation are now available to all the employees of the company. the intent over here is that to provide the executives of the company an incentive to improve the performance of the company, which has helped the executives to be motivated and the end result of this is that they work hard and due to this the company has become one of the biggest successes in the food and beverage industry all over the globe. Another example of stock incentives is that Home Depot provides its management and administrative employees with stock options.
The company also provides its other workers with discount stock buying program. This stock program has been quite a success and this the way the employees of Home Depot were loyal of the company and they are quite motivated to do their job. (Home Depot) Reward Management Reward management is now becoming a growing trend in a great deal of companies around the globe. Reward management is a combination of strategies and policies; this means that the company rewards their employees in a fair, equitable and consistent manner in accordance with the employee’s performance.
For example, Coca Cola Company has been using reward management system for a long period of time and it has also been a great success as well. The company makes sure that the employees are motivated to do their jobs properly. The company provides its employees with yearly, quarterly and monthly rewards like grade jump, employee of the quarterly sales, and employee salary increments. (Coca Cola) In case of reward management it is important for a company like Coca Cola Company to follow the following process. Non-Monetary Incentives Incentives usually mean money but performance incentives also come in other forms as well.
For example, many organizations have recognition programs in which the employees of the company receive novelty items, plaques, time off, vacations and other non-cash items for job performance. For example, IKEA has programs which help the management to recognize the employees and his/her performance. IKEA recognizes the efforts of the employee. What happens is that the supervisor appreciates the efforts that are done by his or her subordinates. Recognition is considered to be one of the major motivators in IKEA that helps to motivate the employee towards a better job performance.
And what happens is that the employees start to anticipate rewards in any form like vacations or a bit of time off to spend with their families, helps them to become more motivated and this also helps to improve their performance as well. Benefit Packages The salary structure is considered to be an extremely important part of the compensation package that helps to maintain a positive and productive workforce of the company, but more important are the benefits that are offered by the company to make the workforce more motivated and productive towards their work. The benefits have now become the most peripheral part of the salary structure.
It is the benefits package that helps to meet the requirement and the needs of the employees of the company. A successful example would be that Hallmark Cards Inc. created a family friendly benefits package for its employees, this package included the following, parental leave up to six months, unpaid maternal or parental leave, partial reimbursement for adoption expenses, assistance with finding child and elder care facilities, flextime and job sharing options for the employees, lunch time seminars on parenting and family care based topics and as well as sick child services through a couple of area based hospitals.
The end result was that this benefit package did work out for the employees of the company; this was fulfilling their family based requirements, which most companies do not care about. This way the employees of the Hallmark Cards Inc. were motivated enough and they become more and more productive. The end outcome was that with this package the company was also able to meets its desired goals and objectives without any difficulty. Medical Insurance
Medical insurance actually pays the employee for sickness, accident, and as well as hospitalization expenses up to the policy ceiling of the company. What happens in most policies is that they contain a schedule of benefits of the employee. And it is with the help of this schedule that tells which sickness, expense or accident needs to be covered or else the insurer will pay a certain amount of money. Now days the companies are actually paying the employees to stay fit.
(Bratton & Gold, 261) For example, General Electric (GE) saves somewhere around a million dollars at its aircraft engine headquarters. With the installation of the fitness program the company was able to decrease their health care costs, while the employees were remaining fit on their jobs. In this case scenario both the company and the employees were happy, the employees were motivated and they were fit as well to fulfill the requirements of their work schedule/ job. Merit Raises
Merit raises are actually pay increase but they also come under pay for performance, because these merit raises actually help the employees to become motivated. These raises are actually decided by the employee’s in charge, whether the subordinate is worthy of this raise or not, it all depends on the evaluation of the supervisor. For example, Dunkin Donuts make sure that they provide merit raises to those employees whose performance has been good in a consistent manner. And this helps to create a healthy and a positive working environment within the company.
These raises help the employees at Dunkin Donuts to become more productive and when the employees are productive then it means is that the employees of the company are extremely satisfied with their job. (Raffetto)
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In the end it is very important for the management of the company to provide its employees with pay for performance or incentives. These incentives are the things which are going to help the employees become motivated towards their work. If the employees are not satisfied with the company, then they tend to leave and this could damage the reputation of the company considerably.
One thing that needs to be remembered by the management of the company is nontraditional incentive approaches have gained a great deal of popularity. This also helps the employers of the company relate to pay to performance while improving employee commitment, so that they remain loyal and motivated.