Financial Incentive Plans
The third piece of the job design equation is the paycheck. In this section we briefly review common methods for setting financial incentives.
Basic Compensation Systems
The primary films of basic compensation are hourly pay. straight salary. piece r te. and commissions. The first two are based on time spent on the job. with individual performance ultimately rewarded by an increase in the base rate. Piece-rate plans reward on the basis of direct daily output (a worker is paid S5 a unit and if he or she produces 10 units per day. he or she earns 550). Sometimes. a guaranteed base is included in a piece-rate plan worker would receive this base amount regardless of output. plus his or her piece-rate bon J~. (For example. the worker’s hourly base pay is S8. so this coupled with S50 piece-rate earnings would give him or her $114 for an eight-hour day.) Another approach with the guaranteed base is that the worker is paid either the piece rate or the guaranteed base. whichever is higher. Commissions may be thought of as sales-based piece rates and are calculated in the same general way.
The two broad categories of financial incentive plans are individual or small group incentive plans and organization wide plans