Incentive Pay Plans (Research Paper Sample)

Incentive Pay Plans
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Incentive Pay Plans
Employee motivation is an issue of utmost importance to existing and potential employers. However, the query of how to inspire workers sufficiently is what has resulted to the immense interest among management scholars and economists. Employers have opted for different approaches to motivate their employees. In this regard, some have developed incentive plans to ensure their employees perform their level best. There are two broad categories of incentive pay plans. They are an individual and group incentive pay plans. The individual incentives pay each of the employees based on his or her performance level. The group incentive plans pays or rewards a department, or the whole organization’s staff for the attainment of strategic organizational goals.
The two categories comprise of different pay plans, which are central to the type of objective that the organization, either set for the employee or department to achieve. Group and individual incentive pay plans have proven effective for organizations to achieve strategic goals (Caruth, & Handlogten, 2001). The group incentive plans often feature the most in organizations because it is sometimes a difficult task measuring the individual performance levels. In fact, it is a strategic pay plan because it enhances the growth of teamwork, which is essential in the development of organizations.
Straight piecework is the most common form of individual incentive pay plan. It is the simplest in terms of development, and employees can understand it easily. In this plan, the employer pays the employee a fixed amount in relation to the unit of output for every production above the normal level of production. Empirical evidence comments that this plan is advantageous to both the employees and the organization. It is so because as the employee is working above the normal production level, they get incentives and the firm realizes its objectives. Because of its simplicity, organizations have found this plan easy to install, administer and communicate to employees.
The differential piecework is another common individual incentive pay plan. Unlike the aforementioned pay plan, this pay plan pays the employees a constant rate per item, once the employee exceeds the standard. It, therefore, pays a differential rate per unit. In this view, it is clear that it is possible for the rate per item to either decrease, or increase as the number of items per unit produced increases (Caruth, & Handlogten, 2001). The standard hours are another typical individual incentive plan. In this plan, employees receive incentives based on time allowances. In comparison to the aforementioned plans, this plan is the simplest and employees can interpret it quickly. In fact, they are simpler to administer and manage than piece rates.
Group incentive plans also feature in most organizations. They are many, and firms prefer them to individual incentive plans, and these plans reward in a collective approach (Bortolotti, Devetag, & Ortmann, 2012). The Priestman plan provides incentives in the form of bonuses. Employees receive payments as additions to the normal time rates. For example, if an organization is able to realize objectives, which increase the firm’s profits more than the previous years; employees receive increased wages in the same ratio of profitability. The Scanlon plan provides payment of 10% participating bonus for each rise in productivity by 10%. Although the incentive pay plans are different, they strive to serve the same purpose; providing an incentive, which will make employees achieve the firm’s strategic objectives (Bortolotti, Devetag, & Ortmann, 2012).
Despite having the same objective, the common forms of individual incentive plans differ with the team incentive plans when it comes to effectiveness. When individual staff performs the same under the both incentive plans, it may due to the similar performance levels. In this regard, high performers tend to perform poorly when put in a group. From this position, it is obvious that high performers will perform better under the individual incentive pay plans. Alternatively, the common individual incentive plans recognize the individual input from employees. In terms of overtime, employees still receive pay.
In addition, these incentive plans do not take much time to recognize employee’s efforts (McGee et al., 2006). For example, the Scanlon plan under the team incentive pay-plan takes much time to recognize the team’s effort...