incentive

  List and explain the advantages and disadvantages of incentive pay, and describe how companies can overcome the disadvantages. Your response should be at least 75 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.

Reference

 

Noe, R., Hollenbeck, J., Gerhart, B., & Wright, P. (2011). fundamentals of human resource management. (4th ed., pp. 356-357). Boston, MA: McGraw-Hill.

 

356 PART 4 Compensating Human Resources

i*cen{ive PaY
Forms of PaY linked

to an emPloYee’s
performance as an

individual, grouP

member,

or

organization member.

L{“.13 Discuss the

connection between

incentive PaY and

employee
perf orma n ce.

In conlrast to decisions about pay
struclul’e’ organlzatiolls have -tt^1lt:’t:’:::l:’:l

settilrg performance-ti;i;;;’ t”li”d incentive
pay’ otganizatiorls can lle lncel1-

tive pay to i.ciividr-ral;;{o.|;,.,.”‘ p’ofit”
ot

‘tu’-‘y
o’l-‘tt

‘.’-ttu”‘res
of success’ They

select ir-rcentives based on their.orrr, “ro”.,.Jir-rnr.”.e
o. perfortnance, and fi

t

with the orgar-rizarion’. rr..”a., HR and company
grlicies and goals’ These decisions

ar.e sicnifica.r. A srrrcly of 150 orgarrizariorrr io,”r,f
that th,e,ri;ay olganizati,rr: paid

ilrH;H;;;’;;.;’;io’ associateJ with their level of profitabiIitv’,
This chapter “*pfor”l

riJ;h;1.”t availabie to organizations rvith regard to incen’

ri’e pay. First, the .h”;;;J.tU”t ,rt” li.k betrveen pay and enployee
performance’

Nexr, we discuss *^or’;;;;;;;rl.”tp-tiae a Variety of pay incenrives
to individu-

als. The follorving ,*o ,”lrior-r, d.r.rib” pay related to
grolrp a’d otganizational per’-

forinance. we then explore the Organization’s proces”i
thut can sLrpfioft the use of

‘;;;;;;t;
n;y’ Finally’ we cliscuss incerrti’c l)a)’

for- the orga’izatiotr’s executives’

fin**sng*v* Fax5r
Along with r,r,ages and salaries, natly organizations

of{et incentiue pay-that is’ pay

,;..,f:.;ur;.Jg””a ro “r.rgir”,
,-1irecr, or conrrol e.rployees’ behavior. l’centi’e pay

is influenrial becar-rse ;;;il;; paid is iinked to certai’
predefined beha’iors or

outcomes. For exarnpie, as we \vill see in this
chapter, an olganization can pay a sales’

;;;;;.”;;i*r”‘f.; .i;.i”*” r”f”, or the ‘Lrernbers
of a productio’ deparrmeut can

earn a bonus ;or,t””‘;;;;;:.”1’ty’p’oduttion goal’ Usually’
these paf inents are in

addition ro wages ^ra
,”T”ri”r. i;.;ri;g they can ear11 extra lnoney for. closi’rg sales

or

neeting d.ep-.,artnrerital goals, the empioyees
often try lrarder.ol.get mole crealive than

they rnight without ,h””-;;;r*” p^y.’1r, ac,dr.ion, tba
polrcy o{ offerurg h’igh-et pa”;

for higher p”,fo1.*u,1.” may make n,’, o,ga,.,i,ntio,.’
u,,.u.,i.,. to high perfornrers wherr

ir is trying ro r.ecr.uir ,,.,j;J,;’; ;i”r” “ilrrbl.
enrployees.4 FoL reasorrs such as thcse,

the share of .oropur1il;e,.t* variabie pay rose in less
rhan trvo decadcs from about

half of comPanies to 9 out of 10”

For incenriv” puy-ro *oiiuor” “-ployees
to contribute to the organization’s sttc-

cess, the pay pians ,r”r, rr” *.li d”rigr-r”.1. I. pu.ti.uln., effecti’e
plans rneet t1’re fol-

lorving requirements:

. Performance measures are linked to the olganization’s
goals’

.
^E;i;;”,

b.li”u”?”y can-lneet perfor’ance standards’
.Theorganizationgivesemployeestheresourcestheyneedtomeettheirgoals.
. Employees value the rervards given’
. frr’litoy”.s believe the rervard system is fair’
r The pay plan ,uk”r-l*o u.cor.rnt that employees may rgnore

any goals that are not

rewarded.

The
,,HR Hon, To” box provides some additional i.deas

for creating and implement-

ing an effecti,r” ltlt”^Jit-o”u pf^” even u’hen resources
are limited’

Sir-rce incenr-” O^O’O ft””Li io purti.ular outcolnes or
behaviors’ t6e orga’ization

isencotrragingenployeestodernonstratethosechosenoutcolnesandbehaviors.As
obrrious as that ,’Iruy ,o.rr-rd, the implications

are more complicated’ if incentive pay is

extremely ter.varding, ernployees may focus.t-r “.iv
,rr” performance measllres rei’varded

under the ptan an<1 ;il;;", thut ur" ro. rewarded. Suppose an organization

pays lnanage., u Uor”lo when ernploy””‘ ^'”
*ioft”a’ this pollcy may interfere wlth

other managerlent ,oj1t’ A;;;;ug”‘ “‘t-‘o
ao”t”;t quite know how to inspire employ’

ees to do rheir best rnighr be ternptetl ro
fall bacl on overiy positive performance

On
is

j

reir
ou

{

lot
but
ide
an

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I

(

(
I

I
(

t
r

t

o!
c

s
rl
p

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e1nl”l

effic
relat
ince

I
yalu

havr
Dlall
n’ho
extri
aan
u’orl
;rJ a1
a\\,aI

L.eg:r

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One advantage of incentive PaY
is that, because it is targeted to
reinforcing desired behaviors and
outcomes, there are ways to get a
lot of benefits out of it even when
budgets are tight. Here are some
ideas for getting the most out of
an incentive-paY Plan:

. Be very clear about what
behavior or outcomes You
want to encourage. ManY
options are available, from
delighting customers to Pre-
venting accidents to selling the
products that have the biggest
profit margins. Direct most
or all of the incentive PaY to
rewarding performance on the
measurements that will have
the most impact on the organi-
zation’s success.

r Set up objective ways to mea-
sure whether the individual or
group earns the incentive, so
that rewards don’t become a
popularity contest or lotterY’

The measurement should
include a minimum level of Per-
formance required for receiving
pad or all of the reward’
Commu nicate with emPloyees.
Especially if moneY is tight. be
honest about the comPany’s
resources. lnvite ideas about
what employees would aPPre-
ciate receiving, so that You’ll
be spending on what matters
most.
Combine the forms of incen-
tive pay with nonmonetarY
rewards such as thank-You
notes and public recogni-
tion for grouP and individual
accomplishments. ln some
cases, emploYees maY be
wowed by a chance to have
breakfast with the boss or
attend a meeting with a com-
pany expert.
When delivering the reward,
communicate what accom-
plishment led to the award, so

employees see the connection-
and that theY see that the com-
pany also notices what theY
have contributed.

. Consider giving managers
a pool of money to use for
granting bonuses when indi-
viduals or grouPS exhibit
the desired performance or
exceed objectives.

. Grant bonuses or other incen-
tives frequentlY. Smaller PaY-
outs delivered more frequentlY
can keep excitement higher for
the same amount of moneY as
the organization would have
spent on an annual bonus’

Sources: “How to Reward EmPloYees
on a Budget,” lnc., APril 19, 2010, www.
inc.com; and “Try Two Bonus Tactics
Suited for Tough Times,” HR Specidist:
Compensatton & Benefits, March 2010,

Business & Company Resource Center,

http://galenet.galegrouP.com

.:

ti

appraisals, letting u,clrk slide to keep’, everyone happy. Sirnilarly, rnaly call cel1te.rs pay

“nlploy””i
based”on horv many calli they har-rdle, as an incentive to work quickly and

efficiently. Hou,ever, speedy call handling does not llecessarily foster good customer.
relationships. As n,e *’i11 ,.. in this chapter, organizations malr combine :r nr’rmber of
incentives ro ero;.loy”.s c{o not focr”rs on One l11easule to the exch-rsion of others’

Attitucles thai influer-ice the sllccess of incentive pay incl-rde lr,i-rether ernpklyees
value the reu,ards ar-rc1 think the pay plan is fair. Sorne obsetvers of today’s u’orkplace
have found that 1,or-rng workers typicaliy wa’t freqllent encoufagelne’t, and creative
managers haye clevelgped incentives that get this type of u’orkel excited. A beverage
rvhole”saler, {or e”ample, began arvarding its employees “points.” For every ror’rtine ancl

extra task inrrolvetl in running the r.varehouse, empiol’ees earn poinrs, and those points

capbeexchange,-lforextra;’,ayoltirr-reoff.En-rplol,eesseeacollnectiollbetu’een1-rard
u,ork ancl irnnecliate.”rvard, (pornts), so tirey n,ork hariler. Similar11′, a tnanager of ar-l

a.1 agency discor.ered rhat a yclung ernployee was so clelighted to learn she t-rad been
arvar,le.l

i’extra
Lroitlls” for goir-rg above and be1’ond her trsr::rl duties thar the agencl’

begal ar.varding points to all employees for beatir-rg deadlilres antl rtrrning in excep-
tiial rvork. Tli”-og.t.y counts Lrp t1-re poir-rts ut-tr-1 i,rtt’..t, them into bor-rus pay’6

357

358 PART 4 Compensating Human Resources

L*3 Describe how
orga nizations

recognize individual
performance.

Althoughmost,ifnotall,employeesvalrrePaY,itisimportanttorememberthat
earning money

‘.s
not th;;;ly t”u’o* 9::pt” tiy ro do a

good !ob’ As we discuss in

;;#;”h”0;*, (r”” c6^pr;4, B, u’-‘d.i:)’ p”opi” ulto want interesting
work’ appre-

;i;;;.” for their
“fforrr,

fi.”iliirty, and u ,.r-tr” of belonglng,to the work group-not

ro menrion the inne*uiiri*lo” of work well done’ Therefore, a complete
plan for

motivating
“r-ra

.o*p”iorl”g
“*pitvees

has many components’ from pay to work

J”rigr-, to ieveioping
^^r-r”g”.”,

,o
‘h”y

can exercise poslti’e leadership’
-”

\i;hG”.d to tli” fairnJss of incentive pay, the preceding chapter described equity
tn.”rv, ,nj.h e*plains ho* “*ploy””,

form ludgmenrs about the fairness of a
pay

strucrure, The same pr;;rr “ppi*r
to judgmenls about incentive pay’ In general,””*l;;,

.ornpu.” ,fr-r .ff.”r ur-rd ,.turld, with other employees’, considerir-rg a
pi”l r, O. fair when if-tl .”**ar are distributed according to what the employees
contribute.-”

ii-r. remainder of this chapter identifies eiements of incentive pay syste”-‘s’
.ffe consider each optiorl, ,tr.rrgth, and limitations with regard

to these princi-

;i;.-Th;”f n”i. of incentirie pay fall into three broad
categories: incentives

it”L.a io ir’raiuia,rul, group, or organizational performance.’ Choices
from these cat-

;;;;,;:;;;ld .o’r’d?, ,-,oi o.,ly”rh”ir strengths and weaknesses,.but also
their fir

wirh the organizarion;;ir. ii” chotce- of”incentive pay may affect not
only the

level of morivation lur”Jo the kinds of employees r’vho are attracted to and
stay

with the organization. fo. “””*pfe,
there is some evidence that organizations with

team-based rewards will tend to attfact employees who are more team-oriented’

*nii” .”*”rds tied to individual performance make an organization more
attrac-

rive ro rhose who ,fri^t-“.a ui, *a.p..rdently,. as-individual,’? Gitt””
the poten’

tial impact, o.gu.rir”tiorr, ,to’o”ty shtuld r’r’eigh the strengths and
lveaknesses in

;;l;.#g ,yp”rlf i.r.”..it . pay bt’i also should measure the results of these
programs

(see “Did You Know?”)’

Pay fon !ndividua[ Penformanee
organizations may reward individual performance u,ith

a variety of incentives:

o Piecework rates
. Standard hour Plans
o Merit pay
r Individual bonuses
o Sales commissions

Piecework Rates
As an incentive to work efficiently, sorne organizations _pay

produclion workers a

piecework rate, a;;;;;;;;J”r,’,ih” ,-o.,rir they produce. The amount
paid per

unit is set at a r”r.r ir-,li r”*ura, employees for above-average
production volume’

For example, suppose that on average, assembiers can
finish 10 components in an

hour. If the organization wants to pay its average assenrblers $8^p,t’hour’
it carr pay

;;;;;;i,”?”-“f g6ihour dividei by i0-components/hour, o. $.80
per component’

Ai-,
“.r”*bl.r

who produces the average of 10 components per hour
earns an amount

equal to $B per lro,rr- A.t assembler -ho p’odtttts 12 components
in an hour would

.l* S.sO x’12, o, $9.;;;;.h hour’ This is an example of a straight
piecework

plan, becaur. ,t’,. .*pLy;; ;”yt the same rate per piece’ no matter how
much the

worker produces.

Piecework ftate

A wage based on

the amount workers
produce.

Straight Piecework
Plan

lncentive PaY in which

the emploYer PaYs the

same rate Per Piece,
no matter how much

the worker Produces.

j
{

r
{r

tl

la

ialli
1.1-Or

lro(

lng
L

inor(
iates
empl
ri the
:ates
l
ila\re
This
lhar

fiece’
lerfor
.:tisfa
realize
:.hi1e
tonus
:aop a
,:oals r
–thers.
:n orgi
,rrganiz
.olving