how would you go about deciding whether to use a job-based, skill based, or pay-for-performance compensation plan for employees in a T-shirt manufacturing plant? For waitstaff in a restaurant? For salespeople in an insurance company? And why?
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I think that pay for performance would be best for business which depend upon great customer service. Outside of that, as in a t-shirt company, simple hourly wages could be paid. That being said, an owner/manager could decide to pay manufacturing employees based upon performance. This type of pay would insure good performance, but may result in lower quality products.
The solutions that provide the best incentives should always be the ones chosen. For a waitstaff, it would have to be a very high end restaurant, the kind that employs a professional, full-time waitstaff in order for skill-based compensation to be even considered. There would be no reason to pay people at a shirt factory anything other than hourly wages, though you should certainly consider bonuses for safety or other criteria. Some salespeople, especially those who keep office hours, work on a salary plus commission, but certainly pay-for-performance would be the way to go there.
I don't think that skill based would make much sense in any of these cases because there are not really any credentials that would have any bearing on how well a person would do at the jobs. I'd say that job-based would make most sense in the shirt factory because that is the one that is most repetitive and unskilled. For the others, pay for performance would make sense to provide incentives for good work.
One factor that would definitely have to be taken into consideration would be differences in rates of pay as well as the cost of fringe benefits. More and more companies seem to be decided to keep pay as low as possible and to offer fewer fringe benefits than were offered in the past. By keeping costs as low as possible, they hope to make as great a profit as possible, but they run the risk of employing sub-standard workers who have no loyalty to the company.
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