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Seven Approaches to New Pay Programs

May 1, 1999
Related Topics: Compensation Design and Communication, Variable Pay, Featured Article
Common alternatives to standard base pay -

Performance-based Variable Pay:
Designed to reward employees for achieving specific company and/orindividual performance goals. Bonus or incentive programs that typically payout in cash. Performance is typically measured on an annual basis, althoughmore frequent payouts may be made depending on business cycle and ability tomeasure results. Award size varies from period to period depending oncompany and/or individual performance.

Team Incentives:
Used to reward project or work team members based on achievement ofspecific team goals. Payouts may be at project milestones or the completionof specified performance periods. Most effective when team participants,specific roles and expected contributions are clearly delineated. Targetaward is generally the same for all team members (either a flat dollaramount or same percentage of pay).

Gainsharing/Results Sharing:
Typically, cash awards based on meeting specific performance objectivesthat may be operations and/or financial in nature. Employees"share" in the gain/result caused by their contribution. May beused in manufacturing environments or for any business objective whereperformance above a set target is the goal.

An approach to managing base pay that promotes career development byproviding a mechanism to reward skill and knowledge growth. Often used withcompetency or skill-based pay approaches.

Compentency-based Pay:
Pay based on demonstration of competencies, skills and behaviorsspecifically identified by the company as critical to achieve competitiveadvantage - typically used with knowledge workers.

Skill-based Pay:
Pay based on acquisition and application of specific skills critical tothe business or operation - typically used in manufacturing environments.

Broad-based Stock Plan:
Stock based plans used to encourage sense of ownership among employeesacross various organization levels. May be based on specific performanceachievement or to retain talent through a specific time frame.

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