Focused vs. Consolidated Measures in Performance Pay Systems…

Focused vs. Consolidated Measures in Performance Pay Systems...

Abstract Two types of incentive pay plans both have long histories and have been widely adopted by business organizations. One type is the one-dimensional plan that includes sales commissions and production piece-rates. The second type is group plans that include profit sharing and gainsharing. Problems and issues are inherent in both approaches and are discussed. A solution to these problems is described that includes the use of the “Performance Matrix” and “Profit-indexed Performance Pay. An important issue in the design of performance pay systems is whether the payout measures should be focused (one-dimensional) or balanced (multi- dimensional) through consolidation. Examples of focused measures are sales commissions and piece-rate plans. Examples of consolidated measures are profit sharing and gain sharing.

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