Incentives for Employees

10 Key excerpts on "Incentives for Employees"

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  eBook - ePub

  BUILD IT

  Employee Share Ownership Plans

  • Craig West(Author)
  • 2021(Publication Date)
  • Succession Plus

    (Publisher)

  This must be industry-competitive. If you pay less than the rest of the market, you will attract a lower quality of employee, which will be reflected in your operating results. Compulsory employee benefits such as superannuation, annual leave, personal leave and so on can also be enhanced to help position your company as an employer of choice, and will help you retain high-performing staff. For example, company funded superannuation contributions could be increased after a certain number of years’ service, or additional paid annual leave offered to long-standing employees.

  Discretionary Employee Benefits These may be financial (such as employee share schemes, employer-funded health insurance or study leave) or non-financial. Non-financial incentives recognise and reward performance, as well as demonstrating a commitment to employees by assisting them to achieve some of their lifestyle objectives.

  Short-term non-financial incentives might include tickets to the theatre or a sporting event, dinner at a restaurant, a weekend away or even just a pat on the back or public acknowledgement for a job well done. They may be awarded to individuals or to teams, to be enjoyed together. Long-term non-financial incentives might include flexible working hours, the option to work from home, the provision of childcare facilities, job sharing and so on.

  Performance-Based Pay This is about rewarding people for their results and should also include both short-term and long-term incentives.

  Short-term incentives are designed to influence immediate behaviour to achieve specific short-term goals. They might take the form of cash bonuses, commissions, fringe benefits or anything else that is meaningful to the employee but that does not cost the company unnecessarily in terms of margin.

  Long-term incentives provide employees with a vested interest in increasing the value of the organisation. In the US and UK, long-term incentives make up between 50 and 60% of an executive’s annual remuneration. There is a growing global trend toward decreasing the percentage of fixed remuneration and increasing the percentage of remuneration at risk in both the short and long term. With high performing staff, linking higher remuneration to results is a win/win for both the business and the employee – the sky is literally the limit for both. Many long-term incentive schemes include a vesting period, often up to five years, which means that the employee must remain with the company for a longer period of time before he or she can enjoy the full benefits of the scheme.

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  Organizational Success through Effective Human Resources Management

  • Ronald R. Sims(Author)
  • 2002(Publication Date)
  • Praeger

    (Publisher)

  Organization incentives reward people for the performance of the entire organization. This approach reduces individual and team competition and assumes that all employees working together can generate better organi- zational results that lead to better financial performance. These programs share some of the financial gains to the organization through payments to employees. The payments often are paid as an additional percentage of employees' base pay. Also, organizational incentives may be given as a lump-sum amount to all employees, or different amounts may be given to different levels of employees throughout the organization. The most prev- alent forms of organization-wide incentives are profit-sharing plans and employee stock plans. For senior managers and executives, variable pay plans often are established to provide stock options and other forms of deferred compensation that minimize the tax liabilities of the recipients. Individual Incentives One of the oldest and most common forms of individual enticement is based on piecework or piece-rate, whether of the straight or differential type. Under a piece-rate incentive plan, the organization pays an employee a certain amount of money for every unit he or she produces. Under the straight piece-rate system, wages are determined by multiplying the number of units produced (such as customers contacted or modules completed) by the piece rate for one unit. The rate per piece does not change regardless of the number of pieces produced. Because the cost is the same for each unit, the wage for each employee is easy to figure, and labor costs can be accurately predicted. Under a differential piece rate, employees whose production exceeds the standard output receive a higher rate for all of their work than the rate paid to those who do not exceed the standard. Developed by Frederick W. Taylor in the late 1800s, this system is designed to stimulate employees to achieve or exceed established standards of production.

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  Handbook of Improving Performance in the Workplace, The Handbook of Selecting and Implementing Performance Interventions

  • Ryan Watkins, Doug Leigh, Ryan Watkins, Doug Leigh(Authors)
  • 2009(Publication Date)
  • Pfeiffer

    (Publisher)

  A bonus is a goal-driven incentive payment. Bonus pay can be an effective motivational tool because it enables an employee’s effort and good performance to translate into recognition and a reward. Bonuses thus help to align the interests of the employee with that of the firm, thereby creating an incentive for the employee to perform efficiently and to a high standard. An annual bonus scheme covering company executives and paid annually based on a single year’s performance is a common industry practice, but bonus plans that link pay to a specific areas of company business strategy, such as employee recruitment and retention, quality and customer service, have now gained the attention of company management (IDS, 2007). The practice of tying bonuses to multiple business goals can take many different forms. For instance, it is possible to operate several bonus schemes providing appropriate incentives for different employee groups, while also operating corporate level (or business unit level) schemes to reward all staff for the overall performance of the company. This is based on the conjecture that both personal and corporate-level factors are important when devising optimal incentives in new industrial environments. Thus, targets can be set for specific jobs, teams, or departments, alongside company-wide elements. The outcome of these schemes critically depends on a combination of factors, including performance measurement methodologies and the structure of the pay-performance relation.

  Stock Option Plans

  Stock option plans are used to increase the equity stake of CEOs and top executives so their interests match those of the shareholders. The underlying assumption is that when executives own stock it will motivate them to take actions that improve the firm’s market value. A stock option is given to a CEO at a specific exercise or strike price (C), which is typically the market price of the stock when the option is granted. The CEO is then in the possession of a contract that entitles him to purchase shares at the option’s fixed exercise price (C) rather than at the market price (P) . Since the value of the option increases with the rise in the market price of the company’s stock, it also increases the value of CEO’s holdings. The option is “in-the-money” when the current market price of the stock exceeds the exercise price of the option.

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  Unlocking Human Resource Management

  • Margaret Inman, Nuala O'Sullivan, Adrian Murton(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  As you can see, most motivation theories date back many years and so their relevance to today’s work environment, could be questioned. Some believe that motivation in the twenty-first century should be based on a different set of criteria such as friendship, the benefits of work and respect (Reis and Pena 2001). In fact in Mercer’s Global Total Reward Survey (2008) ‘respect’ was rated as the highest factor in employee motivation (80 per cent), followed closely by ‘type of work’ (73 per cent), the ‘people who work with you’ (71 per cent) and ‘work-life balance’ (69 per cent). Pay and benefits were amongst the lowest rated motivators. Despite this, there is a general support for some of the early theories, particularly those of Maslow and Herzberg, as they are seen to provide basic principles on which organisations can motivate and support their employees (Mullins 2008). Being aware of the different motivational theories coupled with more recent research will ensure that the complexity of motivation is not forgotten when deciding appropriate reward strategies.

  Reward systems

  Rewarding people for a good job done should be linked to the values or strategy of the organisation. So if an organisation wants to encourage good customer service then it would make sense to reward those who give good customer service. Similarly those organisations who value teamwork, should reward effective teamworking. The value individuals in the organisation put on different types of reward should also inform decisions of how much and in what form, to reward their employees. Reward is not just about the money paid in a salary. Reward can come in many forms. Financial rewards can be in the form of basic salary, but it can also be through share ownership and financial benefits such as pensions or private health care. People can also be rewarded in non-financial ways such as through recognition, career opportunities or a good quality of working life. Whatever form of reward a company operates, the fairness of how people are rewarded is essential. Any reward system which is perceived as unfair will not be effective and is likely to leave employees disillusioned and demotivated. We will first look at the types of financial reward which operate in organisations.

  4.3	Financial rewards

  Base pay

  This is the amount of money which is paid for a particular job. It is often called ‘payment by time’ where an individual is paid for a specified amount of time at work. This can be based on an hourly rate or as a weekly or monthly salary. There are many different types of pay structures but they tend to fall into two categories, spot pay and graded pay.

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  Human Resource Management

  • Greg L. Stewart, Kenneth G. Brown(Authors)
  • 2014(Publication Date)
  • Wiley

    (Publisher)

  Because providing individual incentives often destroys teamwork, organizations are adopting group-based incentives at an increasing pace. Common group-based incentives include team bonuses and gain-sharing plans. Most businesses also use organizational incentives to encourage employees to develop a sense of ownership in the organization. Common organizational incentives include profit sharing and stock plans. TEAM BONUSES AND INCENTIVES In many ways, team incentives are similar to individual incentives. The main difference is that team incentives are linked to the collective performance of groups rather than to the performance of individuals. Rewards are given when the group as a whole demonstrates high performance. Team rewards work best when the size of the group being measured is relatively small, when collective performance can be accurately measured, and when management support for the program is high. 47 One type of group incentive is the goal-based team reward, which provides a payment when a team reaches a specific goal. Following the principles of goal-setting theory that was introduced in Chapter 11, an incentive of this kind provides a team with a specific objective and rewards the team if the objec- tive is achieved. Goal-based team rewards are thus a type of contract in which the organization agrees to provide a reward if the team meets a specific per- formance objective. Another type of team incentive is the discretionary team bonus, which provides payment when high performance is observed. With discretionary rewards, no goal is set to achieve a specific outcome. Managers simply provide a reward whenever they think the team has performed well. The frequency and size of the reward are at the discretion of the manager. 48 When an award is given to a team, it can be divided among individual team members in two basic ways.

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  Managing Human Resources

  • Scott Snell, Shad Morris(Authors)
  • 2018(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  The success of an incentive pay plan depends on the organizational climate in which it must oper-ate, employee confidence in it, and its suitability to employee and organizational needs. Importantly, employees must view their incentive pay as being equitable and related to their performance. Perfor-mance measures should be quantifiable, be easily understood, and bear a demonstrated relationship to organizational performance. Piecework plans pay employees a given rate for each unit satisfactorily completed. Employers imple-ment these plans when output is easily measured and when the production process is fairly standardized. Bonuses are incentive payments above base wages paid on either an individual or team basis. A bonus is offered to encourage employees to exert greater effort. LO 1 LO 2 Summary Standard hour plans establish a standard time for job completion. An incentive is paid for finishing the job in less than the preestablished time. These plans are popular for jobs with a fixed time for completion. Paying employees a straight salary allows them to focus on tasks other than sales, such as service and customer goodwill. A straight commission plan causes employees to emphasize sales goals. A combination of salary and commission or bonus provides the advan-tages of both the straight salary and the straight com-mission form of payments. The Scanlon and improshare gainsharing plans pay bonuses to employees unrelated to profit levels. Each of these plans encourages employees to maximize their performance and cooperation through sugges-tions offered to improve organizational performance. LO 3 Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience.

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  Managing Employee Performance and Reward

  Systems, Practices and Prospects

  • John Shields, Jim Rooney, Michelle Brown, Sarah Kaine(Authors)
  • 2020(Publication Date)
  • Cambridge University Press

    (Publisher)

  ‘Reward’ and ‘total reward’ What is a ‘reward’? A reward may be anything tangible or intangible that an organisation provides to its employees either intentionally or unintentionally in exchange for the employee’s potential or actual work contribution, and to which employees as individuals attach a positive value as a satisfier of certain self-defined needs. On this definition, rewards can be seen as including not only financial rewards (i.e. pay, remuneration or compensation) but also rewards of a beneficial non-financial nature. Such a broad definition means that the options for configuring a reward management system are extremely wide. Such a definition also accords with what is commonly referred to in the practitioner literature (e.g. Brown 2014; CIPD 2013; Fuehrer 1994; Kao & Kantor 2004; WorldatWork 2007; Zingheim & Schuster 2000b) as a ‘total reward’ approach. What types of reward fall within the scope of a total reward approach? As figure 1.3 indicates, rewards can be divided into two broad categories: ‘intrinsic’ and ‘extrinsic’. Intrinsic rewards arise from the content of the job itself, including the interest and challenge that it provides, the task variety and autonomy, the degree of feedback, and the meaning and significance attributed to it. It follows that one of the most important determinants of the level of intrinsic rewards in any organisation is the way in which its jobs are designed. Extrinsic rewards arise from the factors associated with, but physically external to, the job that the employee does; that is, from the job context. Extrinsic rewards are of three main types: financial rewards, developmental rewards and social rewards. Developmental rewards cover those rewards associated 14 | Managing Employee Performance and Reward with personal learning, development and career growth, such as skills training and performance and leadership coaching.

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  Unrelenting Innovation

  How to Create a Culture for Market Dominance

  • Gerard J. Tellis(Author)
  • 2012(Publication Date)
  • Jossey-Bass

    (Publisher)

  Perks are also a major means of incentivizing innovations. In some established corporations, perks such as fancy offices, reserved parking, company cars, and company jets are tied to rank, seniority, and longevity within the company. Indeed, the corner office or 27th-floor glass office can become symbols to flaunt. But in some highly innovative corporations, even the CEO has only a cubicle. When Gordon Moore, cofounder and CEO of Intel, who was worth billions, was once asked why he had no more than a cubicle without a door or window, he replied, “In a business like this, people with the power are the ones with the understanding of what's going on, not necessarily the ones on top. It is very important that those people who have the knowledge are the ones who make the decisions. So we set up something where everyone who has the knowledge has an equal say with what was going on.” Moore's implicit message was that the lowly engineer working on routine innovations was valued as highly as the CEO and founder. Windowed offices, heavy doors, and gold-plated fixtures were not symbols of achievement. Facebook has gone a step further with open working spaces that do not even have cubicles. It has peeled away status, perks, and walls to create an atmosphere of openness, equality, and intense interaction for innovation.

  Thus, incentives for enterprise must be based on innovative performance and not on seniority or longevity or even performance on current products. Such incentives must be asymmetric, with strong rewards for success and weak penalties for failure. Constructing such incentives requires constant watchfulness and deliberate intent, because the natural human tendency is just the reverse: to shame failure and overlook success or take it for granted.

  Making Incentives Work: Economics and Psychology of Incentives

  Economic theory suggests that human behaviors (activities) can be priced and that desired activities can be motivated by suitable monetary incentives. Positive incentives consist of monetary incentives (salary, bonus, stock options), perks (titles, office, planes, and so forth), and nonmonetary incentives (awards and honors). A major challenge with incentives is deciding which metric to link them to. Incentives tied to sales of current products will lead to a focus on and increase in sales of current products. Incentives tied to current publications will lead to a focus on and increase in publications. One chief technology officer of a major multinational corporation said to me of their one-time strategy, “We judged people on papers, so they wrote lots of papers.” Incentives tied to patents will lead to an increase in patents. Incentives tied to innovation will lead to an increase in innovations. That is surely important, but may not be enough. A vice president of research labs for another major multinational said to me, “We have innovations sitting on the shelf.” In this latter case, incentives were even designed for developing innovations, but not for commercializing them.

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  Designing Dynamic Organizations

  A Hands-on Guide for Leaders at All Levels

  • Jay Galbraith, Diane Downey, Amy Kates(Authors)
  • 2001(Publication Date)
  • AMACOM

    (Publisher)

  Organizations are relying more on team- and unit-based compensation than they have in the past. If your organization design assumes cooperation will be necessary because of the interdependence and complexity of the work, then the work should be motivated and rewarded through rewards that don't just focus on more than individual contributions. Team and unit incentives usually combine aspects of performance and skill-based pay.

  Performance Incentives. A performance goal is set for the team or business unit. It may be based on hard criteria, such as cost savings, output achieved, or deadlines met, or it may include some softer criteria, such as effective problem solving. When the goal is met, a bonus is given, either in the form of cash, stock, or noncash rewards. When it is linked to a gain-sharing or profit-sharing plan, the amount is tied to the overall financial performance of the unit.

  Skill-Based Pay. Teams can be rewarded for the collective skills they accumulate. The team is not rewarded until all team members reach a certain level, in order to encourage the more skilled employees to help others achieve competence. It is most commonly applied in team settings where the tasks of the team are specific and measurable and where there is a desire to make the team more flexible and autonomous by increasing the skills of all team members. As each team member learns and applies the skills that are needed by the team overall, that person's pay is increased. Team members cross-train in the work of others in order to lessen the impact of absenteeism on productivity. People are also rewarded for developing management skills. As these responsibilities are moved to the team, the organization can reduce the number of managers needed.

  Rewards based on collective effort and outcomes have some potential hazards.

  Distinguishing Which Organizational Level to Reward.

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  HBR Guide to Motivating People (HBR Guide Series)

  • Harvard Business Review(Author)
  • 2019(Publication Date)
  • Harvard Business Review Press

    (Publisher)

  SECTION TWO

  Understand Common Motivators

  Passage contains an image

  CHAPTER 4

  It Takes More Than Just Extrinsic Rewards to Inspire People

  When people think about how to motivate employees, it’s often external rewards like pay hikes, promotions, prizes, or bonuses that come immediately to mind. But managers have a lot more tools at their disposal. In fact, research shows that intrinsic rewards are generally more effective at sustaining high performance and engagement—and are fortuitously under a manager’s control. Let’s take a closer look at why motivating with money might not be the best strategy.

  Extrinsic Rewards

  External, tangible forms of recognition are often the first course of action when the troops are flagging. On the surface, extrinsic rewards tend to be easy to execute: “If you make your quota, we’ll pay you $5,000.” In fact, most organizations’ established reward systems are built around extrinsic rewards, and in some instances, they are effective, particularly in industries like sales, where bonuses can be linked to reaching certain quantitative goals. (See chapter 7 for more on how to reward salespeople effectively.)

  But many managers disagree with the notion that financial incentives are necessary to boost performance. Extrinsic rewards don’t necessarily make people work harder or better. As Alfie Kohn writes in his widely cited HBR article, “Why Incentive Plans Cannot Work,” “rewards typically undermine the very processes they are intended to enhance.”

  When such motivators do succeed, the positive effects are often short-lived. Money matters, certainly, and an organization will have a tough time recruiting and keeping good employees without a competitive level of pay and benefits. (As you can see from the sidebar, “The Most Desirable Employee Benefits

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