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Incentive_Rewards_Study_Note - INCENTIVE REWARDS STUDY NOTE...

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INCENTIVE REWARDS S TUDY TUDY N N OTE STRATEGIC REASONS FOR INCENTIVE PLANS Incentive plans, also called variable pay plans, have grown significantly over the past years. Incentive pay programs emphasize a shared focus on organizational objectives by allowing employees to earn increased compensation beyond merit pay increases. Incentive pay promotes employee involvement through a philosophy of shared rewards through commitment. Incentive plans establish a minimum performance level that an employee, or group of employees, must meet in order to be eligible for variable pay. TYPES OF INCENTIVE PLANS INCENTIVE PLANS AS LINKS TO ORGANIZATIONAL OBJECTIVES Organizations implement incentive plans for a number of reasons. Traditional reasons include a desire to lower labor costs and be more competitive, or because of slow technological advances. In today’s competitive environment, while these traditional motives may influence management thinking, other reasons for introducing incentive programs are (1) establishing pay- for-performance standards, (2) increasing organizational productivity and quality, (3) improve customer satisfaction, and (4) expand product markets. Furthermore, it is believed that incentive pay promotes a feeling of employee “ownership” in jobs. Ownership and job commitment serve to improve employee job performance. Many organizations have used incentive plans to improve their performance. Because of incentive plan successes, these pay programs are predicted to increase in the future. Small- group incentives and group plans are predicted to grow the largest. Unfortunately, studies show that variable pay plans often have not achieved their proposed objectives or lead to organizational improvements. (1) Incentive plans sometimes fail to satisfy employee expectations for pay gains. (2) Management may have failed to give adequate attention to the design and implementation of the plan, leaving employees confused about how incentive payments are calculated. (3) Employees may have little ability to affect performance standards. (4) The success of an incentive plan will depend on the environment that exists within a firm. Advantages of Incentive Plans . (1) Incentives focus employee efforts on specific performance targets. They provide real motivation that produces important employee and organizational gains. (2) Incentive payouts are variable costs linked to the achievement of results. Base salaries are fixed costs largely unrelated to output. (3) Incentive compensation is directly related to operating performance. If performance objectives (quantity and/or quality) are met, incentives INDIVIDUAL Piecework Standard hour plan Bonuses Merit pay Lump-sum merit pay Incentive awards Sales incentives GROUP Team compensation Gainsharing plans Scanlon Rucker Improshare ENTERPRISE Profit sharing Stock options ESOPs 1
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are paid. If objectives are not achieved, incentives are withheld. (4) Incentives foster teamwork and unit cohesiveness when payments to individuals are based on team results. (5) Incentives are a way to distribute success among those responsible for producing that success.
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Incentive_Rewards_Study_Note - INCENTIVE REWARDS STUDY NOTE...

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