bonuses have their roots in the days when manufacturers rewarded
hourly workers for speeding up their work pace. For instance, a
worker who finished rolling 100 packages of shrink-wrap would earn
a productivity bonus because an increase in personal efficacy meant
a greater rate of output - and more profit - for the company.
longer confined to hourly workers, productivity bonuses are now
being used throughout the payscale as rewards for performance and
a survey of 783 employees across diverse companies, 20 percent of
executives said they are seeing productivity rewards, and 27 percent
of managment-level employees said they get similar bonuses. Roughly
29 percent of exempt/professional employees said they receive productivity
pay. This compares to the 36 percent of hourly workers who said
they receive similar pay bonuses. The survey was published in 2000
by the Society for Human Resource Management and Arthur Andersen
efficiency to compensation
Bonuses are still mostly used as recruting and retention tools,
but there is a "growing interest in providing incentive pay
for production or services," said Jerry Mattern, chairman of
the compensation and benefits committee at the Society for Human
is important to both production- and service-based businesses. As
the economy has shifted more heavily toward services, productivity
measures evolved to encompass the work of professionals and executives
whose work does not result in the production of tangible or measurable
goods. But although productivity bonuses can be good for both employers
and employees, productivity and efficiency are not the same thing.
a manufacturing business, where workers are likely to be eligible
for overtime, productivity bonuses rewarded those who accomplished
more during a regular shift. But today's productivity bonuses sometimes
reward workers for putting in more hours, not for accomplishing
more in the same amount of time.
doctors find pay tied to productivity
Those in finance, law, medicine, and other white-collar professions
are receiving productivity bonuses linked to the rate their services
are used as well as the number of hours worked each day, instead
of their output.
privately held physicians' groups have pay structures fundamentally
based on workers' productivity. A doctor may receive productivity
pay based on his or her net billings, which is then measured against
the group's total adjusted billings. Other physicians' groups use
net professional charges to determine productivity pay by deducting
the group's expenses from their revenues.
consider the specific physician's share, such as the number of clients
he or she personally tended, against the group's production. The
effect of this pay structure is that a physician may work longer
hours at a faster rate, which could cause a decline in the quality
of care and the level of service.
the legal profession, a similar transformation has taken place.
Productivity bonuses are common in law firms and often are based
on the number of hours an attorney bills. A bonus can add $15,000
to $25,000 to the attorney's salary. Critics say that such incentives
can decrease the quality of legal work. In addition, attorneys are
trying to reach or exceed their firms' quotas, which has resulted
in a decline in hours spent on pro bono cases, according
to the Legal Times.
Allen, author of the 2000 Legal Times article, "Who
wants to earn $160,000 a Year?" wrote that lawyers are
working so many hours that they are not earning much more than babysitters.
At Orrick, Herrington & Sutcliffe, an internationally renowned
law firm based in San Francisco, the firm's productivity pay program
results in attorneys being paid no more than $31 an hour, which
includes their bonuses, Allen wrote.
results for pay-for-performance
But the concept of productivity pay seems to be working at all
job levels. The survey found that executives respond positively
to such incentives 15 percent more than hourly employees. Managers
will respond 13 percent more than hourly employees.
pay helps the employee and the company perform better, according
to the survey. Close to 80 percent of respondents said their companies
offer these types of bonuses to link individual goals to business
goals, and 63 percent said productivity pay is a reward for superior
performance. More than 50 percent of the respondents said incentive
pay is used to boost workers' salaries, improve productivity, and
bonuses empower workers
Employers who want to improve overall performance and profits
may offer gain-sharing bonuses, a bonus program by which employees
or groups of employees are rewarded for determining and implementing
ways to save the company money that are consistent with the company’s
business objectives. Gain-sharing can include profit-sharing plans,
restricted stock plans, or management-by-objective programs, all
of which tie personal growth to company growth.
than 70 percent of the survey respondents said gain-sharing, or
aligning individual compensation with organizational performance,
is an effective tool for accomplishing corporate objectives. According
to the SHRM survey, it is effective for 79 percent of executives,
73 percent of managers, and 60 percent of exempt personnel and professionals.
In the survey, 50 percent said gain-sharing also worked for administrative
and hourly employees, a slightly smaller number that still shows
the effectiveness of rewarding workers for their dedication to improving
their jobs and their company.
is more productivity to be gained by positively motivating people,
than by simple pay-for-performance," said an executive at Sealed
Air Corp., a worldwide packaging firm headquartered in New Jersey.
He supports the practice of moving some of the decision-making way
down into the workforce.
a group of workers on line get together to discuss and decide their
own solutions to problems, the company will often see a resultant
increase in productivity," due to the workers' investment in
the larger operations of their company, he said.
Leslie Tebbe, Salary.com Contributor