Performance Linked Incentives
Encyclopedia
A Performance Linked Incentive (PLI) is a form of payment from an employer to an employee, which is directly related to the performance output of an employee and which may be specified in an employment contract
. PLI may either be open ended (does not have a fixed ceiling) or close ended (has an upper ceiling which is normally stipulated in the employment contract)
Open ended incentives are normally applicable revenue generating activities (e.g., Sales) and Close ended incentives are associated to support functions (e.g., Operation, Human Resources, Administration etc.)
is paid for the efforts that one puts in and PLI is paid for the results. Salary is paid in short, definitive cycles (e.g., weekly, monthly, fortnightly etc.) while PLI is paid in a longer cycle of monthly, quarterly or half-yearly,yearly.
is the generally used to define the output which determines the payment of PLI. Since PLI is paid for the results and not merely for the efforts, the objects should be chosen to reflect those activities whose results are visible immediately after the effort.
Also, in calculating PLI, only the performance and not the potential of the employee should be considered. Potential of the employee is normally subjective and can be contested. PLI should be based on metrics which are absolutely objective and clearly perceived as fair by both employee and employer.
Employment contract
A contract of employment is a category of contract used in labour law to attribute right and responsibilities between parties to a bargain.On the one end stands an "employee" who is "employed" by an "employer". It has arisen out of the old master-servant law, used before the 20th century...
. PLI may either be open ended (does not have a fixed ceiling) or close ended (has an upper ceiling which is normally stipulated in the employment contract)
Open ended incentives are normally applicable revenue generating activities (e.g., Sales) and Close ended incentives are associated to support functions (e.g., Operation, Human Resources, Administration etc.)
PLI vs salary
SalarySalary
A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis....
is paid for the efforts that one puts in and PLI is paid for the results. Salary is paid in short, definitive cycles (e.g., weekly, monthly, fortnightly etc.) while PLI is paid in a longer cycle of monthly, quarterly or half-yearly,yearly.
PLI vs bonus
Bonus is paid for the performance of the organization while PLI is paid for the individual's performance. Bonus is normally paid yearly or half-yearly. This is normally paid as a percentage of one's salary, or as a fixed amount, irrespective of the employee's individual performance.PLI vs retention bonus
Some organizations give a retention bonus which is payable for the period that an employee stays back in the organization. This is paid for the value added by the employee by virtue of mere presence and not necessary for the efforts or work output. Normally retention bonus is paid yearly or half-yearly which will incentivise the employee to stay back in the organization for the payment.Method of calculating PLI
PLI, by virtue of being sanctified in the employment contract, is paid for objective, measurable and visible results. Management by objectivesManagement by objectives
Management by Objectives is a process of defining objectives within an organization so that management and employees agree to the objectives and understand what they need to do in the organization....
is the generally used to define the output which determines the payment of PLI. Since PLI is paid for the results and not merely for the efforts, the objects should be chosen to reflect those activities whose results are visible immediately after the effort.
Also, in calculating PLI, only the performance and not the potential of the employee should be considered. Potential of the employee is normally subjective and can be contested. PLI should be based on metrics which are absolutely objective and clearly perceived as fair by both employee and employer.
PLI vs Appraisal
Appraisals, normally conducted half-yearly or annually is used to decide on the salary increments and promotions of the employee. This, being permanent increase, takes both performance and potential of the employee.See also
- Executive compensationExecutive compensationExecutive pay is financial compensation received by an officer of a firm, often as a mixture of salary, bonuses, shares of and/or call options on the company stock, etc. Over the past three decades, executive pay has risen dramatically beyond the rising levels of an average worker's wage...
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External links
- 17 Things Explanation of salary requirements and how to establish these.