3 individual incentives may do such a good job of

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3. Individual incentives may do such a good job of motivating employees that they do whatever they get paid for and nothing else. 4. Individual incentives typically do not fit in with the team approach. Example: At Lantech, a small manufacturing company, the incentive pay system ignited "gang warfare" in which individuals and departments tried to make others look bad to make their own numbers look good. They finally abandoned individual and division performance pay, and relied instead on a profitsharing plan in which all employees get bonuses based on salary. Source: "Incentive Pay Can Be Crippling" by P. Nulty, Fortune, November 13, 1995. 5. They may be inconsistent with goals of acquiring multiple skills and proactive problem solving. 6. Some incentive plans reward output at the expense of quality or customer service. B. Profit Sharing and Ownership 1. Under profit sharing, payments are based on a measure of organization performance (profits) and do not become part of the employees’ base salary. a. An advantage is that profit sharing may encourage employees to think more like owners and take a broad view of what needs to be done, labor costs are reduced in difficult economic times, and organizations may not have to rely on layoffs. There is a downside risk in that there may be no profits in a given period.
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b. A second advantage is that because payments do not become part of base pay, labor costs are automatically reduced during difficult economic times, and wealth is shared during good times. c. The drawback is that workers may perceive their performance has little to do with profit but is more related to top management decisions over which they have little control. Therefore, most employees are unlikely to see a strong connection between what they do and what they earn under profit sharing (instrumentality perceptions are not likely to be reinforced). They may also be disturbed when plans do not pay out when no profit is made
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