. PREM Company is an engineering company with an employee strength of 1,000. The company has a system of incentive linked monthly productivity bonuses for the shop floor employees, which serves the purpose of rewarding good work. The HR director, Mr. Suraj has been facing a dilemma, how to evaluate the performance of middle management, and how to link it with productivity. After deliberate discussions with individual managers, he develops a plan. The plan is designed to enhance teamwork and provide incentives for improvement and excellence among middle-level managers. Briefly, the payment will be split into two components. The first consists of 80% of the original salary, which will be a fixed component and will be determined as before. The second component of 20% will be flexible and will depend upon the ability of each team as a whole to show a minimum of 5% improvement in their respective areas. The scheme when discussed with managers, received a number of negative remarks. One manager said that why should their performance depend upon the performance of other members of the team. The new pay scheme makes them team players first and specialists in their areas next. Another objection was that why the good persons in the team should suffer if the other members were not measuring up to the expectations. Moreover, there are a number of external factors that affect individual and collective performance. For example, if a product suddenly goes out of demand affecting marketability, why should the concerned marketing team be penalized for something beyond its control. Now Mr. Suraj is in a tight position. The company has been the trendsetter in executive compensation in the Indian industry as they have been paying the best. Will the new plan ensure that it remains that way? If the plan succeeds PREM sets another trend in executive compensation. But how should he see this plan through?

Questions :

1. Do you think it is proper to evaluate managers on the basis of productivity?

2. In your opinion, individual performance or team performance is the most suitable criteria for incentive plans?