Question

Analyze the benefits and disadvantages of traditional pay plans versus contingency pay plans.

Create a contingency pay plan for an organization that uses the traditional pay plan. Determine two factors in that contingency pay plan that would enhance human capital and directly impact performance management systems in a positive way. Predict the changes that will take place in an organization six months and twelve months after the implementation of the contingency pay plan.

Answer 1

1. Benefit and disadvantages of traditional pay plans versus contingency pay plans.

Ans.: Following are the differences between traditional pay plan vs. Contingency pay plan.

• Traditional pay plan have defined structure of pay plan, in which pay scale tends to increase annually with fixed percentage (Anywhere between 3 to 4). On the other hand in contingency pay plan is based on variable pay plan.
• Tradition pay plan is based on individual performance on the other hand contingency pay plan is based on business performance.
• Contingency pay plan believes in variable pay system.

2. Creation of contingency plan.

Ans.: Below are the steps in creation of contingency plan:

• In the first step, risk associated with potential areas is identified. In order to identify risks various techniques are used such as group discussion within organisation.
• Once all the risk is identified, they are being prioritised. This is done in order to find solutions and in order to reduce them.
• Once all the risk is prioritized, contingency plan are created. Plan is created based on goals and objectives of business.
• This is the step where all the plans created are executed and ensure that they are executed well.

3. Factors of contingency plan that enhance human capital and impact performance management system.

Ans.: Contingency plan is also called as variable pay. This performance related pay have impact on employees. Employees get motivated by incentives and variable pay. This create positive impact on employees.