Tutorial 12
Group Activity
Working in groups, develop an incentive plan for the following positions: chemical
engineer, plant manager, used-car salesperson. What factors did you have to
consider in reaching your conclusions? I would give the chemical engineer a merit
raise system because he or she has little perceived control or impact over the production
or profitability of the company. The plant manager should receive an annual bonus tied to
the profitability of the plant, as well as a stock option plan to encourage long-term
planning as well. The used-car salesperson would likely receive a straight commission
plan because sales are more directly dependent on his or her ability to sell those cars to
prospective customers. (LO 12.6; AACSB: Analytic Skills; Learning Outcome: Describe
the objectives of performance-based pay and financial incentives in the workplace)
Discussion Questions
1. Compare and contrast six types of incentive plans. Various types of incentive plans
were presented in the text, including piecework plans, straight and guaranteed plans,
standard hour plans, plans for salespersons (commissions and combination plans), and
group incentive plans. With the piecework plans, earnings are tied directly to what the
individual worker produces and are more appropriate in a manufacturing organization.
Commissions are more appropriate for salespeople in situations where they are largely
unsupervised. In group incentive plans like the Scanlon Plan, all workers involved in
developing and implementing cost savings share in the benefits of the suggestions. (LO
12.2; AACSB: Analytic Skills; Learning Outcome: Describe the objectives of performancebased pay and financial incentives in the workplace)
2. Explain five reasons why incentive plans fail. When incentive plans fail, it can be for a
variety of reasons like: employees do not believe that effort will obtain the reward, bad
management overrides the plan, rewards are tied to the wrong measures, the plan is
complicated and difficult for employees to understand, or standards are too high or too
low. (LO 12.2; Learning Outcome: Describe the objectives of performance-based pay and
financial incentives in the workplace)
3. Describe the nature of some important management incentives. Two widely used
management incentive plans are merit pay and profit-sharing plans. Merit pay is any
salary increase that is awarded to an employee on his or her individual performance.
Advocates argue that only pay tied directly to performance can motivate improved
performance. Profit-sharing plans distribute a portion of the company's profits to
employees in the form of a bonus. Research shows that benefits are more subtle than
increased productivity—benefits are possibly in the form of better worker commitment.
There might also include long-term incentives. (LO 12.4; Learning Outcome: Describe the
objectives of performance-based pay and financial incentives in the workplace)
4. When and why would you pay a salesperson a combined salary and commission?
Salary plans work well when your objective is prospecting work or when the salesperson
is primarily involved in account servicing. They are often found in industries that sell
technical products. A commission plan is appropriate when sales costs are proportional
to sales. This can reduce the selling investment for fixed costs. The straight commission
also provides salespeople with the greatest possible incentive, and there is a tendency to
attract high-performing people. Combination plans are used when the firm wants to direct
its salespeople's activities by detailing what services the salary component is being paid
for while the commission component provides a built-in incentive. (LO 12.3; Learning
Outcome: Describe the objectives of performance-based pay and financial incentives in
the workplace)
5. What is merit pay? Do you think it's a good idea to award employees merit raises?
Why or why not? Merit pay is a salary increase that is awarded to an employee based
on his or her individual performance. It is a good idea to award merit raises when you
have a good performance appraisal system and employees' individual effort can be fairly
and accurately evaluated or measured. (LO 12.5; AACSB: Analytic Skills; Learning
Outcome: Describe the objectives of performance-based pay and financial incentives in
the workplace)
6. In this chapter, we listed a number of guidelines for not instituting a pay-forperformance plan. Do you think these points make sense in terms of motivation
theory? Why or why not? All of these reasons are, or can be, valid. There will also be
organizational situations where one or more of them will not be valid. Students should
describe situations in which the reason is (or is not) valid. (LO 12.1; AACSB: Analytic
Skills; Learning Outcome: Describe the objectives of performance-based pay and
financial incentives in the workplace)
7. What is a Scanlon plan? Based on what you've read in this chapter, what features
of an effective incentive program does the Scanlon plan include? This is an
incentive plan that was developed in 1937 by Joseph Scanlon. It includes features such
as a philosophy of cooperation, identity, competence, involvement, and sharing of
benefits. All these are features of a commitment-building program. The Scanlon plan is
actually an early version of what today is known as a gainsharing plan. (LO 12.5; AACSB:
Reflective Thinking Skills; Learning Outcome: Describe the objectives of performancebased pay and financial incentives in the workplace)
8. Give four examples of when you would suggest using team or group incentive
programs rather than individual incentive programs. Students should review the
sections in the chapter on team or group incentive programs and individual incentive
programs, and think about situations where they would prefer one incentive plan over the
other. (LO 12.5; AACSB: Analytic Skills; Learning Outcome: Describe the objectives of
performance-based pay and financial incentives in the workplace)