...reading that I also found interesting was Incentive Pay. The article I found further discusses this topic by weighing the benefits and drawbacks of incentives. What drew me to read this particular article was its title “Why Incentives are Irresistible, Effective and likely to Backfire” This article discusses that though incentives are irresistible to employees and are effective in increasing job performance, it sometimes has negative consequences. For example, the authors states in the article that “Ken O'Brien was an NFL quarterback in the 1980s and 1990s. Early in his career, he threw a lot of interceptions, so one clever team lawyer wrote a clause into O'Brien's contract penalizing him for each one he threw. The incentive worked as intended: His interceptions plummeted, but that's because he stopped throwing the ball.”(Heath & Heath 2009) Another example this article describes is Paul Stiles experience as a new trader at the venerable investment bank. “Merrill Lynch wanted Paul to trade complex international bonds in volatile markets. He tried asking advice of the seasoned traders, but they ignored him, a minute spent helping Stiles was a minute spent not adding to their monthly bonuses. It surely never dawned on the person who set up Merrill Lynch's incentive system that the traders bonuses would make training new employees impossible.” (Heath & Heath 2009). Prior to reading this article, it never occurred to me that incentive pay can have negative implications and this article...
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...ACCOUNTING STRATEGY AND CONTROL (AC 411) ESSAY 1: Do you believe that incentive pay is truly effort-inducing; that is, drive employees to perform at their best? Discuss In recent times, companies are faced with a lot of competition and they need to constantly devise strategies to tackle this competition. They are continuously looking for ways to increase the performance of the company and ways to keep their workers and other employees motivated so that they deliver their best in such a competitive atmosphere. Incentive pay is one such strategy used by companies to perform well. Incentive pay is pay based on specific performance of an employee, which may take the form of gift vouchers, stock option, bonus, profit sharing, commission etc. It is generally used in companies where the performance is measurable. It is compensation that rewards results rather than time spent on a job. It is a method adopted by employers to motivate employees to perform better and continue delivering good results, which directly leads to the success of the company. I believe that structured monetary incentives are truly effort inducing. Incentive pay motivates employees and maintains high work performance. Employees find it hard to keep themselves motivated at work. Implementing a good incentive pay program helps to keep the employees engaged and motivated to do well by rewarding them for all the good work they do. For instance, in the Lincoln Electric case employees were paid based on piecework....
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...December 6, 2012 Incentive Pay This topic was picked as a local health organization is going to be implementing this for their employees in the 2014 fiscal year. They have decided after many years of debate to finally make the decision to include this when they do annual reviews to determine if the employee will receive an additional pay raise over the normal market percentage that they receive on a yearly basis. This is a new device that employers are beginning to use to coax employees to do more in their everyday functions than just what is required of them by their employer. There are several steps to implementing a successful incentive compensation program. The six steps mentioned here that are worth exploring further to make sure the process goes accordingly to help the organization to reach their goal of more revenue, increased patient satisfaction and increased motivation from employees. The process was written by D. Kevin Berchelmann of Triangle Performance LLC. 1. Determine what the plan intends to accomplish-Identify in detail what the desired conditions should be and the reasonable behaviors necessary to achieve them. It’s important to make sure that the organization analyzes the appropriateness for the environment for which the plan will be implemented and to make sure that the plan clearly states what it is that the organization wants, be specific as possible. 2. Determine Participants- Every employee is key component to making the plan...
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...Most will agree that knowledge is the ‘key’ resource in this post-industrial economy. The challenge for many companies is developing an organization that creates and cultivates knowledge and learning. Pay plays a significant role in shaping workplace behavior. Most of the traditional pay systems reward the job, but don't always incite the employees who are willing and able to go above and beyond to want to actually want to do so. There are many ways to accomplish this and one of those ways is by implementing the the resources and abilities of HR. Corporations are looking for new ways to improve employee performance as well as remain competitive. Pay for performance is one method some businesses are utilizing to improve employee performance. Performance-based compensation exists when compensation is tied directly to that portion of an individual’s performance that can be effectively measured. There are a number of ways in which this may be accomplished and a number of examples as well how it is applied. One popular pay for performance structure is the merit pay system. In the merit pay system an employee is paid a higher rate within their respective salary range, based on her/his achievements or high level of performance. Another performance structure is the Rating Scale. For each performance factor, an employee is assigned a position on the scale in relation to that factor. Performance factors are the key duties and responsibilities of particular position. If the performance...
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...rewarding employees for their efforts and outcomes and including this aspect in the pay schemes. (Bryson, Freeman, Lucifora, Pellizzari and VirginiePérotin [2011]). This has been supported by research that indicates pay incentives lead to greater effort than it would have if it was not present (Bonner, Sprinkle [2002]). Results Control empowers employees to take the best possible actions and holds them accountable for these actions in order to obtain the desired results (MCS). The fact that even today many employers continue to use pay incentive systems is an indicator that the model has worked and there are many advantages to using it, however some evidence indicates that there are few factors that determine its effectiveness (Bonner, Sprinkle [2002]). This essay will focus on the relationship between pay incentives and employee effort using economic theories, advantages and instances where it has been successful and the factors that impact the effectiveness of these incentives. The essay will contend that pay incentives are powerful motivators to induce effort however it needs to be designed carefully considering various contingency factors. There is a strong relationship between pay incentives and employee efforts, consequently greater efforts lead to higher performance. Evidence suggests that there are certain theories that detail the process through which monetary incentives lead to increase in efforts. According to (Bonner, Sprinkle [2002]) the Expectancy...
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...Incentive Pay Incentive Pay is an important compensation that keeps employees wanting to perform to the best of their abilities for the company. Getting paid for specific performance results is probably in my opinion one of the reasons I would stay with a company. If I feel I am doing above and beyond what is asked of me and the company is receiving revenue based on my performance, I feel I should receive incentive pay. With my current employer, management employees are compensated for their performance for the previous fiscal year. My company has what is called a Management Incentive Program that pays employees for specific performance results made by the company. Employees have a choice to receive their incentive pay as a stock option, check for incentive pay or they are able to receive half in stock option and half as a check. This is a good incentive pay because on top of that, employee receive a half month bonus based on their individual performance in the company. One article I researched and found about incentive pay was the Delta Airlines employees earning $6 million in incentive pay for performance last year. In 2009, Delta Air Lines announced it would add $6 million to employees’ paychecks for meeting the February operational performance goals. Delta’s monthly incentive payouts are based on U.S. Department of Transportation (DOT) data, as well as the company’s own internal goals. During the month of February, Delta employees worked to deliver...
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...Incentive Pay HR Management Foundations December 14, 2014 Determining Incentive Pay All organizations and companies have a pay structure. This pay structure is often very rigid and dependent upon many factors. This pay scale is something that applies to all employees and helps dictate base pay and any future raises. While this pay scale is not adjustable, setting performance-related pay is often at the discretion of the company. This is called incentive pay (Noe, 2011). Often, incentive pay is tied to performance or other metrics set by the company. In general, incentive pay is a way to bolster employee production while helping the company meet profit goals. However, the incentive pay must comply with HR policies and standards. According to Noe (2014), a study of 150 companies and organizations revealed that the way a company paid their employees was strongly linked to employee satisfaction and their level of profitability. As mentioned before, incentive pay is monetary compensation beyond the employee’s regular salary. It is often used to energize or direct an employees’ behavior as it is often linked to predetermined behaviors or outcomes (Noe, 2014). Incentive pay can be found as a commission for those in sales, or a bonus for those in other fields. Offering incentive pay can be beneficial to the company for many reasons. Employees are often willing to work harder or find creative ways to problem solve when money is on the line. In addition, incentive...
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...infrastructure development. 2010. Nr. 5 (24). Research papers. CRITICAL ISSUES FOR COMPENSATION AND INCENTIVES MANAGEMENT: THEORETICAL APPROACH Ramunė Čiarnienė, Milita Vienažindienė Kaunas University of Technology, Vilnius Co-operative College For most people, pay is a primary reason for working. Indeed, compensation is at the core of any employment exchange, and it serves as a defining characteristic of any employment relationship. The study focuses on critical points of compensation and incentives management. The fundamentals of a good incentive program include the elements of vision, potential, communication and motivation and can be realized if incentive promises are fulfilled – by both employer and employee. The aim of the paper is to identify the most important attributes of compensation and incentives management. Research method is the analysis and synthesis of scientific literature, logical, comparative and graphic representation. On the base of analysis, authors of this paper present the model of incentive system for positive employee attitudes and behaviors. Keywords: compensation, employees, incentives, management. Introduction Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship. Pay may be received directly in the form of cash (e.g., wages, merit increases, incentives, cost of living adjustments) or indirectly through benefits and services (e. g., pensions, health insurance...
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...Family Physicians Reimbursement There are two determinants to reimbursement for Bangor Family Physicians: a monthly salary and yearly profits after accounting for reinvestments into the company. Since the foundation of Bangor Family Physicians in 1986, the practice has used an equal pay compensation model as the reimbursement scheme of choice. Profits that are above overhead costs at the end of the year are portioned out equally to each partner, thus determining the overall amount the physician receives for the year. While this type of compensation model discourages overutilization and allocates risk among all physicians, it negatively affects productivity and does not reward efforts to improve quality. Such a system can only work on the basis that all physicians have the same skill and productivity levels and are equally motivated to contribute to the practice. In Bangor Physician’s situation, each physician believes they are working more than the other and thus should receive greater compensation. Bangor Family Physicians Goals The goal of the case study is to elect the most suitable compensation model that meets all five criteria set by Bangor family Physicians and creates an incentive for all physicians to be as...
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...Incentive programs are one of many ways organizations motivate employees. Our goal is to design an incentive program that is aligned with the company’s goals, needs, skills, and abilities. Incentive pay can be determined by merit pay and performance bonuses. Studies have found that pay-for-performance plans help achieve organizational goals and desired performance results. Merit pay is a reward in which employees receive permanent pay increases such as raises as a function of their individual performance ratings. Although it can be different across industries, some recent surveys have demonstrated that 80% to 90% of organizations use merit pay plans (Heneman & Werner, 2005) Merit raises should be fair and based on performance ratings and the biggest increase is given to the best performers. Performance bonuses are monetary rewards for performance and not rolled into base pay. Bonuses must be earned and re-earned during each performance period. Bonuses are attractive to many organizations because the one-time cash reward links pay to performance and motivate employees. (Lawler, 1981; Lowery, Petty, & Thompson, 1996) There are several core legal requirements that will affect our employee’s benefits. These legal requirements include tax treatment of benefit, anti-discrimination laws, and accounting requirements. The federal and state governments require various forms of social insurance to protect workers from the financial hardships of being out of work. The IRS...
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...Monitoring the Process and Deciding if Pay Has Positive Effects on Behavior Pay incentive programs need to be properly designed to promote change and have a positive effect (Springer & Taylor, 2016). Pay incentive programs are to reward faculty who perform well and put forth extra effort (Springer & Taylor, 2016). The programs help less effective faculty to improve their performance and teaching skills (Springer & Taylor, 2016). The programs should also limit the amount of faculty who leave their teaching positions and attract quality faculty (Springer & Taylor, 2016). The pay incentives should motivate faculty to advance their skills or to adopt new strategies, and the incentives should leave a positive influence (Springer & Taylor, 2016)....
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...Do financial incentives drive company performance? Theoretically, monetary incentive is the most powerful motivator for aligning individual behaviour with an organization’s mission. Based on several assumptions, there are three outcomes from financial incentives. Firstly, motivational effect; which is financial incentive to motivate more effort, however, if certain factors cannot be controlled by the individual then employee efforts do not make a difference. Secondly, informational effect, financial compensation that provides employees with information of what the organization values and what their main priorities are. Lastly, selection effect; based on recruiting people who share similar values and traits as the culture of the company based on pay incentives. Incentive pay is fairly widespread across Canada and the United States, both in corporate and non-corporate employment. Interestingly enough, based on survey results, a higher percentage of individuals believe that other people are motivated by financial rewards, and underestimated other motivational factors that the individual ranked as more important (i.e. reputation, appreciation, interesting assignments). This could be attributed towards the fact that individuals think more positively and superiorly about themselves, this is known as the self-enhancement effect. In terms of company growth, I do agree that not all individual financial rewards align with increased business worth. Increasing customer loyalty over...
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...To what extent does executive pay influence company performance? There has been widespread controversy in recent years about the amount of compensation CEO’s receive. CEO’s financial compensation packages were largely structured to incentivize risk taking in order to increase shareholder wealth (“Restraints on Executive Pay”, 2009). Yet, the 2008 financial crisis was mostly characterized by declining levels of company performance largely due to the increase of risk afforded to CEO’s by the attractiveness of lucrative executive incentives to perform. This essay argues that executive pay and its influence on company performance is both controversial and complex and concludes that executive pay has minimal influence on company performance and, when it does have influence, it tends to be negative. It is widely believed that companies and their shareholders suffer from poor performance unless the importance of incentives for executives – most notably through monetary and stock compensation – is realized (Jensen and Murphy 1990). The notion that the level and performance sensitivity of pay affects the quality of managers an organization can attract in a competitive labor market for executives seems, on the surface, uncontroversial. However, whether compensation policy is truly “one of the most important factors in an organization’s success” (p.139), as Jensen and Murphy (1990) assert needs further examination A series of empirical studies from a variety of industry, national...
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... 1 Compensation Planning Jonathan Phifer BUS 434 Compensation & Benefits Management Instructor Justin Furlong July 8, 2013 Compensation Planning 2 Compensation Planning When HR is designing a strategic compensation plan for and organization there are several key factor to consider which should include criteria for strengthening performance, containing cost, limiting liability, and promoting fair pay for employees. To ensure long term success and organizations need a compensation package that links organization strategy to good performance and ties it to the labor market. It also must be within legal compliance of the law and provides a sound salary structure pay for the employees. With the collaborative between these components they must be designed in such a way that it will support the organization business strategy which will stand the test of time and allow the organization to be successful. In this paper I am going to identify these key components and while designing a compensation plan for Holland Enterprises to allow the organization to be successful in the market place. The global market over the last two decades has placed greater stress on organizations regarding their ability to be competitive and profitable and provide high quality of goods and services...
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...promotes higher volumes of care at higher costs to one that promotes high-quality care at reduced costs led to the idea of pay for performance and public-reporting quality initiatives. (Calikoglu 2012) Studies have shown patient benefits resulting from pay for performance initiatives to be varied, and one of the key determinants in that variation is the healthcare setting itself. Another key determinant is the design of the pay for performance incentive, such as what aspect of performance is awarded, as well as the size of the reward. Studies have also shown that public reporting initiatives, or requiring hospitals and physicians to provide data on their own performance, have been effective in reducing preventable injuries in the hospital setting. (Leake 2010) There are two types of pay-for-performance initiatives that have been implemented in recent years: processed-based performance measures and outcome-based performance measures. Processed-based performance measures indicate whether protocols were followed in specific situations. For instance, whether or not patients with acute myocardial infarction received aspirin upon arrival to the emergency department is a process-based measure. Outcome-based performance, however, is measured based on patient outcomes, mortality rates, for example. Studies have shown that patients gain the most value from pay-for-performance initiatives in the hospital setting. The two main studies corroborating this claim are Maryland’s Quality-Based...
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