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Failure to Meet or Exceed Standards
Failure to meet or exceed standards should be carefully investigated, and the reasons should be found and corrected.
The solution depends on the reasons for failure. If the failure is due to organizational considerations, the standards need revision. It may also be due to inadequate training or failure to follow the prescribed methods. These cases call not for a revision of the standards, but for better supervision and training.
Q: What happens if an organization pays the employee "average earnings" even if he or she fails to reach the standard, rather than finding and correcting the reason for the failure?
A: This action weakens variable pay plans.
Organizational Pay Relationships
Pay relationships between jobs become more important when there's a variable pay plan in the organization.
For example…
If earnings of low-skilled employees on variable pay exceed those of high-skilled employees not on variable pay, a perception of inequity is created that will lead to pressure for increases in pay for those not under the variable pay plan.
Extra earnings under the plan must be sufficient to provide incentive for extra effort. With reasonable effort, most employees should be able to attain some incentive earnings.
The average worker on variable pay is expected to earn a 25-30% bonus.
Variable Pay Plan Audit
Many organizations with successful variable pay plans audit all phases of their variable pay plan operation at regular intervals of 1 year or less.
Q: How are standards audited?
A: By analyzing an operation selected at random, almost as if an original standard were being developed.
An advantage of the periodic audit is the assurance that high earnings are not used as a signal to revise standards, but that every standard is periodically audited and revised up or down as prevailing circumstances dictate.
Employees are LESS likely to resent changes brought about by an already agreed-on system.
Memory Jogger
The average worker on variable pay earns what percentage of cash compensation as a guaranteed base salary?