I have been in sales for the past 6 years and have seen just about every type of sales incentive that there is. I have been incentivized on my individual performance, a team performance, the companies performance and every combination of the 3. I have been incentivized on a short term basis (1 month growth) and on a long term basis (6 month growth) and have seen the advantages and disadvantages in all forms of incentives. The disadvantage with team performance incentives depends on the team and how the performance is graded. Often times, in a group setting, one coworker sees the opportunity to slack off as there are other members that can pull the weight. This can lead to dissension in a group and ultimately will reflect on the performance. The advantage, however, is that when done correctly, a team can collaborate their efforts towards a common goal while creating a synergistic effect. Performance can then be accelerated and each member can be paid accordingly. “Properly designed incentive programs work because they are based on two well-accepted psychological principles: (1) increased motivation improves performance and (2) recognition is a major factor in motivation” (Cascio, 2010 p. 438). These concepts are very applicable to individual incentive performance. When an individual has nobody else to share the incentive with, that means there is nobody to share the workload either. Individuals must be able to motivate themselves and they must be able to accept responsibility when they underperform. The disadvantage in many incentive systems is how the performance is measured. For salespeople, quotas constantly rise and at times the quotas may be unattainable based off of over inflated forecasts. Often times, sales people will underperform deliberately at the end of the year so that they do not overreach their quota. They know that if they go over quota by too much then they will have a more difficult time reaching the next quarter’s quota. “Incentives don't just fail; they often backfire..... Despite our abiding faith in incentives as a way to influence behavior in a positive way, they consistently do the reverse” (Schwartz, 2009) The reasons incentives can backfire is because they usually look at the immediate future and they do not look into the long term advantages or disadvantages of a situation. When a companies incentives are tied to the stock price, their will always be the possibility that the stock price will be manipulated. In the short term the price may go up, but in the long term the price has been overinflated and has not correctly measured up to the actual performance of the company. Eventually, this will come back to backfire on the performance and profitability of the company. A combination of individual, team ad overall company performance when done correctly can lead to the best results for the company and opportunity for the employees. This encourages team work but also motivates employees to work individually. It also helps employees look at the overall benefit to the company, noth i the short term as well as the long term.

Executive compensation has received much attention recently with the financial collapse related to the mortgage crisis. Although many company executives have been receiving “golden parachutes” for many years now (Enron, Tyco, Worldcom), the amount of money that executives have been receiving as their companies have failed has been remarkable. The term “too big too fail” was established to keep the economy from going into a further tailspin but ended up being the catalyst towards executives receiving absurd bonuses thanks to the American taxpayer. “The defenders of executive compensation argue that senior executives make the most significant contribution to a company's success; ergo, outsize compensation is justified” (Wadwha, 2011). This argument may hold water in some regards but often times the disproportionate amount of money that is made vs what the average employee makes is very difficult to defend. In a capitalistic environment, incentives, bonuses and uncapped salaries is what drives the economy and innovation. Unfortunately, the gap between innovation and actual contribution to the success of the company is spinning out of control. “Compensation plans need to be tied to an organization’s strategic mission and should take their direction from that mission” (Cascio, 2010 p.422) Compensation should be based on the success of the organization. Salaries should reflect the level of expertise and contribution to an organization while bonuses and incentives should be based primarily on the profitability of the company. In most companies, the shareholders dictate the success of the company and can have a major part in the executive compensation. “Boards, shareholders, and journalists often look at a chief executive’s annual compensation plan to determine whether the company is offering the right incentives to increase shareholder value” (Larcker, 2012).
If the shareholders feels that executives are overpaid, then they may decide that the stock is overpriced. Careful consideration should go into the compensation structure of all employees, especially the top executives as this will reflect on the value of the stock as well. The salary should be set to entice and encourage qualified people to join the company but should not be overinflated as this can cause a separation between some top CEO’s. Often times, when this happens, there is a disconnect within the organization that can lead to organizational and managerial breakdowns that can lead to a loss of efficiency, effectiveness and ultimately profits. Bonuses and incentives should be tied not only to profitability but to other metrics such as organizational efficiency, regulatory adherence and employee retention so that the organization can move in a more cooperative manner with a common goal.

References

Cascio, W. F. (2010). Pay and Incentive Systems. Managing human resources: productivity, quality of work life, profits (8th ed., ed., p. p.422). Boston: Irwin McGraw-Hill.
Larckner, D. (2012.). Does your CEO plan provide the right incentives. www.mckinseyquarterly.com. Retrieved April 14, 2013, from https://www.mckinseyquarterly.com/Does_your_CEO_compensation_plan_provide_the_right_incentives_2952
Wadhwa, V. (2011). How to Fix Oversize Executive Compensation - Businessweek. Businessweek - Business News, Stock market & Financial Advice. Retrieved April 14, 2013, from http://www.businessweek.com/managing/content/mar2011/ca20110324_875444.htm