Introduction
Today, competition between the businesses is extremely high thus companies need to find ways to be competitive. Organizations prepare the best market strategy to increase the company performance and the ways to keep their employee motivation on the highest level to perform well within the competition. At that time, several incentive pay programs play an important role for every organization to perform well within the competition.
Creating and implementing of incentive pay system supports to solve organizational problems to align the preferences of business and employees. In addition, the system serves as an organizing tool to identify and attract the most capable employees since companies need to deliver the product or service within targeted timeframe.
Since organization success depends on both customers’ satisfaction (outsource) and increase employees’ productivity and commitment (internal source), today companies attempt to attract improving employees’ performance by using various flexible incentive pay programs. Careful design of incentive pays program and rules of administration are crucial to the effective management of an organization.
Incentive Pay and Purpose of Incentive Pay System
Incentive pay is a form of direct compensation where employers pay for performance beyond the normal expectations to motivate employees to perform at higher levels. (www.uslegal.com, 2001-2014).
Employers are practicing the incentive pay systems to promote employees particular behavior and performance to get more involved in the organizational development and which is essential for the organization’s success. So employers use incentive pay program as an effective tool for employees to achieve their goals and improve emp...
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Gabris and Giles (1983) research also supports the importance of performance incentives and its role in relieving conflict, so much more that it trumps human relations methodologies. Furthermore, it indicates that lack of performance incentives shows weak organizational objectives, behaviors, structural arrangement (Gabris & Giles, 1983). The importance of performance incentives have a dramatic influence on an organization yet it so simple that it may be dismissed.
Mujtaba, B. G., & Shuaib, S. (2010). An Equitable Total Rewards Approach to Pay for Performance Management. Journal of Management Policy and Practice vol. II (4), 111-121.
Incentive compensation should communicate a company’s overall objectives and be structured so as to reward performance while ensuring overall company growth objectives are met. One type of an incentive is a structured incentive, these incentives have two components; (1) they must be capable of fluctuating as performance changes, and (2) based on a specific accomplishment that is understood by both management and the employee. Examples include but are not limited to piece rate (set dollar amount for every product sold), profit sharing, or set percentage of the total dollar amount sold. Whichever pay structure is implemented it will be important that the incentive be linked to pay for performance. It is presently clear that resources make it difficult to offer competitive salaries that are aligned with the larger competitors. Therefore, linking pay for performance will ensure optimal results for both the company and the employee. Implementing a fair pay structure will not only motivate employees, it will also facilitate in their retention which will decrease costs associated with
The purpose of this paper is to explore the use of Merit Pay and Incentives
...r investigate what sort of rewards or fringes would their employee’s desire compared to the old method of monetary incentives for the beneficial for the company”.
Performance related pay is a financial reward given to employees whose work is considered to have reached a required standard or is above average. “PRP criteria can relate to the individual employee, to work groups or to the organization as a whole” (Armstrong, 2002). It is fair to provide people with financial rewards as a means of paying them according to their contribution (Armstrong 1993:86). The primary purpose of performance related pay in any organization is to recruit, retain and motivate the workforce. It also helps in focusing employees’ minds on particular goals (Protsik, 1966); communicate to employees an organization’s core values, and change the culture of that organization (Kessler and Purcell, 1991).
Incentive reward engagement offers a win-win situation for the employees and the company. Kelleher believes that incentive is a form of recognition and builds engagement through company’s and employee’s obligations towards a common goal (2014). The company has a “Growth Incentive Scheme” for the production workers. Special monetary incentives are provided should the workers achieve the monthly output target. Through the rewards, employees feel motivated towards their work and thus, contribute towards the company’s
In today’s highly competitive industries, companies are forced to find ways to separate themselves from their near peer rivals. Organizational success depends on it. Every strong company views their greatest resource as their workforce and the contributions they make daily in achieving strategic objectives. It is critical for a company to find and sustain top candidates to build a high-performance team. One way to successfully recruit desirable applicants is by offering a relevant and generous compensation and benefits plan. Pay and benefits may be the deciding factor between an employee signing with a company or going to their largest competitor. Human resource managers within the business are responsible for creating a flexible and attractive pay and benefits package that is appealing and comparable to market standards, but within fiscal limits. An organization’s competitive advantage is driven by their compensation strategy and its effect on employee motivation and retention.
In essence, a high wage rate helps in balancing the labor supply and demand curve. For firms that implement high wage rate or incentive and award program, they are never in low supply of labor and this is because most workers are looking to work in such firms. These firms also benefit in term of low rate of turnover, increased loyalty and commitment to the firm, motivated employee, high performance, and less work-related disputes that could lead to litigations. Firms should understand that incentives should never always be in the form of monetary compensation. As highlighted before, compensation can be in the form of structured or casual incentives. The firm can integrate both forms of incentives in order to maximize on their initiatives. In addition, firms should integrate performance evaluation system that will help them provide the right incentive. When providing remedies, formulating regulation and laws, or when bargaining agreements for involved parties, the FWC should consider the significance of pay for incentives and apply this accordingly. Also, the FWC can offer advise to involved parties when it comes to setting work place
Management spends a huge amount of time to design incentive systems and schemes to motivate their workers and to ensure they work in their best possible manner. Motivating workers by giving them decent pay helps in winning employees heart to make the work done efficiently, significantly and effectively. The most effective way to motivate people to work productively is through individual incentive compensation (Pfeffer, 1998). An attraction of getting more is a powerful incentive to people for high performance. While most people agree that money plays a major role in motivating people, in organizations there is a widespread belief that money may also have some undesirable effects on morale.
Employee compensation and reward systems have undergone a couple of paradigm shifts since inception. Reward systems were traditionally compensation based and focused on the individual or the position (Beam 1995). After a recession in the early 1980's, employers turned to performance based models in an attempt to save money while still rewarding top performers (Applebaum & Shapiro, 1992). Today, the most successful organizations are using a total reward model, a hybrid of the performance based model combined with strategic human resource management planning to create reward systems that both benefit the employee and help organizations realize their operational goals (Chen & Hsieh, 2006).
Employers are often faced with the challenge of looking for ways to boost productivity and profitability while at the same time, motivating employees to accomplish organizational goals. For many employers, variable pay plans have risen to meet this challenge. A variable pay plan ties pay increases to increased performance and productivity. One of the more popular group variable pay plans is called gain sharing. Under gain sharing pay programs, both the employer and the employee benefit from increased productivity. Therefore, gain sharing has often been referred to as a win-win pay program since it is an incentive strategy that ties pay to productivity. Gain sharing is a type of incentive plan designed to increase productivity by linking pay directly to specific improvements in a company’s performance. Gain sharing is used primarily when quantitative levels of production are important measures of business success. Gains are shared with unit/department employees on a monthly, quarterly, semiannual or annual basis according to some predetermined formula calculated on the value of gains of production over labor and other costs. The plan lets employees reap some of the rewards of their efforts through teamwork and cooperation and by working smarter and harder.
There is considerable debate over merit pay and the effect it has on employees within an organization. Psychologists believe merit pay is related to the incentive theory of psychology; people respond to rewards and with the proper motivation, it increases performance (Cherry). Employers consider merit pay an effective tool and a form of competition strategy for motivating employees to achieve positive performance outcomes. Many employers ignore the fact that incentive plans may motivate some individuals while others have high work ethics and do not need motivation. The intent of this paper is to discuss merit pay used by companies, the motivational factors on employees to reach high achievement, and the challenges that employees face due
Establishing compensation practice requires for specific goals to be considered such as employee retention, compensation distribution and budget analysis. Organizations must balance each of these goals and also remain competitive in order to motivate employees and maintain fairness in the compensation program.
The foundation for effective job performance and compensation system can be traced to effective job analysis process. Fundamentally, a job analysis should consist of a thorough examination of the job 's duties and knowledge, skills, abilities, and qualities that are required in order to be successful in a specific position, upon which appropriate rewards or compensation can be determined. For many perspectives, jobs are usually made up of requirements and rewards, where rewards may be regarded as a major recruitment strategy for motivating potential employees in order to influence them to stay the organization for a longer period as well as enhance their performance. The most common or basic form of rewards which attracts employees is extrinsic