Question

Team 5 answer the questions

What are 4 key things you learned about the topic from reading their paper?

How does the topic relate to you and your current or past job?

Critique the paper in terms of the organization and quality.

Incentive Systems

            In this paper, we will focus primarily on financial rewards that companies use to attract, retain and motivate the brightest and most talented candidates in the labor market. By providing a reward system that includes performance incentives for executives, lower-level employees, and merit-pay systems that also benefits the company’s mission and long-term strategic goals, companies are seeking to gain a competitive edge over other companies in their market. If a pay system is not the answer, there are alternatives like market-based pay or competency-based pay that will work just as well. But any pay and incentive systems must be aligned with the company’s strategic goals in order for the company to be successful, and management should determine what a competitive compensation system would need to accomplish in order to meet the criterions set by the company’s mission statement and long-term strategic goal.

Developing a Pay System

As mentioned in the introduction, we all go to work to be rewarded and compensated for our contributions to a company, but that pay also has to be fulfilling enough to attract, retain and motivate the most talented employees. According to Cascio (2015), “rewards bridge the gap between organizational objectives and individual expectations and aspirations” (pg.421). Organizational objective is the main reason to develop a pay system, especially for a company that might not otherwise have one in place or their pay system is not aligned to the organization’s strategic goals. According to the University of Michigan (2016), a company’s pay system classifies all the pay scale for specific jobs or types of jobs in the company and sets the base pay for all jobs within the different levels of the pay grade.

Another reason why companies develop a pay system is for the accountability and fairness it provides, by assess the internal, external, and individual equity in regard to pay. According to Cascio (2015), equity can be assessed on three dimensions: internal equity which determines if pay rates are fair in terms of relative worth of individual jobs to an organization; external equity determines whether wages paid by an organization is fair in terms of competitive market rates; and lastly, individual equity determines if each individual’s pay is fair relative to that of other individuals doing the same work (pg.421). For some companies, focusing on external equity better suits their strategic goals to keep costs down relative to its competitors.       There are other reasons why companies develop a pay system that can be discussed further, but essentially pay systems are developed in order to predetermine the rate of pay for any type of job in the company. By using different human resources management tools such as an updated job description; a job-evaluation method; pay surveys; and a pay structure, a company can tell the compensable factors of the job and then rank the position, high to low, against other positions that are more essential to the strategic goals. According to Cascio (2015), the broader objective in developing a pay system is to assign a monetary value to each job in the organization and an orderly procedure for increasing the base rate” (pg. 428).

It is in this writer’s opinion that using a pay system is better than using a market-based pay system because a company can lose its competitive advantage once its competitors are able to determine the pay for a critical position within the company. That rival could then poach away a star employee by offering a higher market base pay if they go and work for them. A competency-based pay system, on the other hand, is a better system if you have a small company that is looking for highly talented employees. Under a pay system, employees are paid based on the job description, and whether or not the company is willing to pay more, regardless of any other skills or knowledge that employee may possess, whereas a competency-based pay system pays employees what they are worth.

Alternatives to Pay Systems

There are a variety of ways to compensate employees within an organization. Smaller companies may have systems that work well for them, but these methods may not work well for larger companies. Traditionally workers would “punch” a time card to notify when they arrived and left work. This time card would then be analyzed by a bookkeeper to decide how much that employee should be compensated in relation to their time at work. After the hours are accounted for, the company would cut a check or give cash to the employees. This is the most simplistic way to operate a payment system. As companies grew and technology advanced more efficient systems were created.

Companies started to implement structured payment systems that would motivate employees to perform above the bare minimum required in their job duties. For example, an employer may incentivize workers by creating competition among employees. If a salesperson outperforms all other employees, this person may receive additional income. This payment system drives the salesperson to work harder for the company.

There are also ways to implement alternative systems that do not involve more money for workers. To encourage a positive work culture a company may name someone employee of the month for being the most kind and efficient employee. A prize for this may include an extended vacation time or an extended lunch period. This system encourages employees without offering any form of extra income. Another way to incentive employees is to offer reward trips to top performing employees. By sending all the top employees on a vacation together it will keep them happy and boost the company morale by allowing employees to connect outside of the workplace. I believe that employees would much rather have extra income opposed to some of these alternative pay systems, but when a company is unable to afford the extra expense, non-monetary rewards are fantastic.

Merit-Pay Systems

Getting rewarded for a job well done is what everyone is asking for. But instead of having your employer praise you with only words or a pat on the back, it is safe to say that all employees would rather receive monetary compensation for all their hard work. Luckily, there is a system just for this, although it does have its advantages and disadvantages. Merit-pay system is a frequently used method in the U.S to pay an employee based on their performance at their job. It rewards the higher performing employees with incentive pay. This system gives employees a pay raise based on their past performance, rewarding those who are succeeding in their job, such as a 2 percent increase. Merit pay is a great way to reward the employees you value and let them know that their contributions to the company are being recognized.

To begin with, there are numerous advantages to merit pay. This system makes it easier for the employer to distinguish the high/low performance between employees. It is used to reinforce employees to strive to be a better worker because they have a good chance at getting an increase in their pay. Employees will be more likely to take their job seriously which will ultimately make the company look even better. It is also a great way for employers to communicate with their staff and discuss what areas need to be worked on so every employee has a fair chance at receiving a pay increase. According to the textbook, “approximately 90 percent of U.S employers use the merit pay system but unfortunately, many of the plans do not work”.

A couple of reasons as to why merit-pay systems do not work all the time is because the incentive value of the reward offered is too low, and merit-based pay fails to match union pay scales. It is hard to please everyone because this topic is so controversial and not everyone has the same viewpoint. Only 35 percent believed that performance, not seniority, determines pay at their workplace and 40 percent of top-performing employees believe that they receive “moderately or significantly better pay raises, annual bonuses, or total pay than do employees with average performance.” More reasons as to why merit pay doesn’t always succeed is due to supervisors resisting performance appraisal, links between performance and rewards are weak, and annuity feature creates problems. It is important that employers are trained in being able to distinguish which employees are good at their job and those who are not making as much progress. Some of those employers just simply do not want to cause any trouble and decide to avoid it completely. According to the textbook, “When the best performers receive rewards that are no higher than the worst performers, motivation plummets.” This simply means that if employees who are trying to do a good job are receiving the same amount of “benefits” as the ones who slack off, they soon will start too. That is why supervisors need to be able to reward those who can do their job successfully. All in all, if a company wants a merit pay system to work, certain things must be accomplished and perfected. Below is a graph stating what is needed to be done for the merit pay system to be successful within said company.

Incentives for Executives

            When talking about the incentives of pay for executives, it is important to know what an executive officer really is in a company. According to Mitch McCrimmon, in his website lead2xl.com, an executive is “a person who occupies a position of authority over people and other resources” (McCrimmon). So, an executive is one who manages and leads the people who work under him. There are many reasons for executives to want to make sure their team is doing their job in the correct and timely manner. When jobs aren’t getting done or aren’t being done correctly, it is really the executives responsibility to make sure that things get straightened out, because really it is their fault if something under his team goes wrong. To help ensure that things go accordingly, executives put in more work into team management and they have to have a knowledge of all the work being done. Since an executive’s job is to know the work of his team and have knowledge of all the assignments and jobs being done, an executive is usually paid the most out of everyone on that team. There are incentives for why an executive would want to make sure he stays in that position, and there are reasons why a company would pay an executive the most money out of everyone in the team.

Ways executives are paid range from higher salaries, to business trips in great locations, to rewards trips to thank them for all the hard work that is being done. According to Michael C. Jensen and Kevin J. Murphy in their article “CEO Incentives—It’s Not How Much You Pay, But How”, they talk about the different ways executives are paid out for their time and hard work throughout the year. Jensen and Murphy state “Compensation for CEOs is no more variable than compensation for hourly and salaried employees. On average, CEOs receive about 50% of their base pay in the form of bonuses. Yet these bonuses don’t generate big fluctuations in CEO compensation” (Jensen, Murphy).

There are many ways an executive is paid as bonuses for the work they have done, but the question that comes to mind is if it is really necessary if they are already getting paid through salary or commission. Personally, I think bonuses to executives is very much a needed reward because it encourages that executive to want to do better every time. If that executive knew he was going to be paid the same amount if he got his work done the same way and the same time every time, he would never want to improve, and he would only just stick with getting his work done. So, showing that a rewards trip or a higher bonus would be giving that executive an incentive to work harder and get work done better and faster. Also, they are already doing their normal jobs being executives, but they have more weight on their shoulders because they don’t just worry about their work, they have to worry about the work of everyone under their team, which can cause a lot of stress and hassle for that executive. So, I think getting extra bonuses or other extra ways of obtaining extra money is a good thing and should be allowed to be given to executive employees.

Incentives for Lower-Level Employees

It is always tough starting a new job because you have to start off at the bottom. As a new employee, you have to overcome the fact that everyone else has already been working for the company and they have the experience already. The key when starting a new job is to familiarize yourself with the layout and your co-workers. It is important to know the layout of where you’re working because if someone needs something you want to know where it is located. And it is important to get to know your co-workers because they can help you out teach you what there is to know about the company. A good way to motivate lower level employees is by incentives. For example, according to David Ingram, “Use monetary incentives, such as cash, to encourage employees to work harder. (1)” For those lower level employees who are struggling financially, cash incentives are a great way to boost proactivity. If they are preoccupied with thoughts and stress because they are unable to pay some bills, cash incentives will push them to work harder and try and learn to move up in the company to be more successful. It will give them something to work for instead of just being comfortable being where they are at. You also want to feel a part of the team as a lower level employee. For instance, Victor Lipman stated, “Do unto others as you would have done unto you. (2)” Having other employees treat you correctly as a lower level employee means a lot because they want you to be the best you can be and want success for you. In my experiences, I was always a little bit nervous moving into a new job because I didn’t know how I would be accepted into the company so I was always a little on edge. I soon noticed there was nothing to be nervous about because the employees were very friendly and helpful even starting off as a lower level employee.

Organization-Wide Incentives        

Organization wide incentives can be separated into three broad categories: profit sharing, gain sharing and employee-stock benefits. These incentives aim to increase productivity, satisfaction, and motivation amongst workers. Organization wide incentives are not individual incentives, but rather focus on goals which the entire firm must achieve. Profit sharing is a common organization wide incentive which usually involves a firm setting a profitability goal. If reached employees, receive some sort of compensation or bonus pay which is determined based on numerous factors. Usually this number is a percentage of a profit number, which usually always varies from firm to firm. In an article written for HBR.org by Alex Bryson and Richard Freeman, they discuss the effectiveness that Profit sharing ultimately has on employees. They state that that the National Bureau for Economic Research conducted research on carious firms and companies using such profit sharing plans to determine their effectiveness. They state that “The conclusion from this body of work, together with similar work conducted in the UK and elsewhere, is that such plans can and do work, often when combined with supportive management practices.” (Bryson and Freeman).
            Gain sharing, another organization wide incentive focuses on employees at the level implementing cost saving behaviors which involves doing something such as using less material, or using less utilities. When a large amount of employees focus on saving small things that require not a lot of effort, firms can reap huge benefits and savings. Employees who are involved in such Gain sharing plans are usually rewarded financially when the organization wide goals are met. Not only do the employees implement ideal behaviors, but Gain Sharing can also lead to a huge advancement in overall cooperation amongst employees. Gain sharing plans, when properly implemented can result in drastic productivity improvements throughout an entire organization.
The final organization wide incentive plan I will be discussing is employee stock ownership plans. Companies who implement such plans are typically mid-size firms. In these plans employees are awarded portions of the company’s stock. These plans aim to increase the involvement which individual employees set forth within decision making. By rewarding employees with stock, they can have partial ownership of a company. Some companies have been known to fully relive their stock to employees, making them employee owned businesses’.
Overall, organization wide incentive plans aim to help individuals to cooperate and be motivated to complete goals. These incentive plans often help increase employee satisfaction, productivity, and morale. Profit sharing, gain sharing, and employee stock ownership plans are three ideal examples of such incentive plans, and can clearly illustrate how these plans are effective. When properly organized and implemented, both firms and individual employees can receive huge benefits from organization wide incentive plans.

Summary

There are many financial rewards that companies use to attract, retain and motivate the brightest and most talented candidates in the labor market. These incentives are great ways to motivate employees in all different industries of the business, mostly motivating them to achieve more in their work, thinking the reward is bigger than what they would get on a normal pay basis. When the more an employee over-performs their work more than they are used to, it starts to become a normal amount of productivity, creating a higher level of work being completed throughout the whole business.

Answer 1

The article addresses incentives to employees the means and methods for it. The quality of employees along with the leader is a major factor in determining the success of an organisation and the achievement of it's goals making it important to attract the best talent in the industry. Human resource is the most common and most important resource in every organisation and it can be the single factor which can make or break an organisation. As such employee satisfaction today is a priority for any organisation and every organisation aims to achieve this firstly through pay packages commensurate to the job profile and inbuilt growth factors over time over base rates. Smaller organisations requiring specialised talent go for competency based pay. Organisations incentivise employees by offering other perks to motivate them to excel, besides basic pay for their job for which they maybe willing to perform their duties. This maybe in the form of cash above their salaries, recognition and titles, complimentary lunches, vacations and the like based on the level of achievement, the organisational goals and culture, and result of such incentive for example will it motivate the rest and create a competitive atmosphere. This system is opposed to the outdated one of grading employees based on number of hours worked. Merit pay is an often used system in the US where pay and promotions are based on output. The implementation of the system seems to have certain drawbacks however, as research suggests most employees feel they are not rewarded adequately as per merit and promotions are seniority based rather than merit based. So, satisfaction level is low as conception of employee and employer does not match. Another important area of incentives is for executives, as they have control over other resources and if the company motivates one executive it has a trickle down effect and the entire team is motivated so payback is high for the organisation. Also, an executive level position entails lot of stress and pressure to perform and incentives are most deserved here. Finally, an organisation wide incentive goes a long way in creating an atmosphere of equality, unity, inclusiveness and competitiveness within an organisationa and is highly recommende for all types of organisations, as it is for achievement of organisation goals and every employee is an integral part of it.

The topic relates to me in my past job in a multi national company whereby incentives were not equal organisation wide and created a lot of dissatisfaction among staff. The incentives were performance based, however, the management mistakenly only considered performance of departments with tangible results such as sales and marketing. Due to this attrition rate was high in the accounts and customer service departments. An organisation should be very careful that a policy meant to motivate a certain department does not end up de-motivating the rest. Any policy adopted to attract talent and retain them should be for every department an organisation is an engine whereby every department has an essential role to play, else the department would not exist. For smooth operations, success, growth and achievement of organisational and personal goals a uniform policy should be adopted for every department.

The paper is very informative, well-documented and presented in a very clear and concise manner. the information on the topic is complete and concise. It explores every required aspect of the topic in a relevant and objective manner without going into extensive or unnecessary details. The flow of information is excellent and is so organised as to ensure each topic is related to the previous one and the information flows in a consistent manner from one topic to another. This makes it very easy to understand the and assimilate the information presented. The amount of information is sufficient for a perfect understanding of the topic in brief without having to opt for external references. So. we can say the article is an excellent piece and does it's job well. It definitely deserves an incentive.