Human Resource Information System

April 29, 2018 Information Technology

Incentive plans are part of an employee’s compensation or pay. The incentive plan gives an employee the opportunity to increase his annual pay based upon either company performance or individual performance. Incentive plans are a way for companies to keep employees motivated to perform to the best of their abilities, thus increasing company profit. Effective Incentive Compensation Plan A successful incentive compensation plan focuses on achieving company goals by driving the right behaviors in employees.

One of the biggest failures of incentive compensation programs is they often do not take into account all the key drivers that will make the company successful. How does a company determine if its incentive plan is effective? If the answer is “no” to any of the following questions, chances are the company is not getting the most benefit out of its plan. Following are guidelines for creating an effective incentive plan. Develop a Strategic Plan Developing and communicating a formal strategic plan creates a unified direction for the company that provides a platform for performance expectations, decision-making and personnel development.

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Develop Best Practices The second step is to develop and implement standard best practices within the business. Developing best practices establishes expectations for all positions in the company and enables management to hold employees accountable for their performance. Determine Shareholders’ Required Return on Investment Company performance standards must be met before any individual bonuses are paid. Employees work for a company and are paid a salary to carry out their job responsibilities. The expectation is if everyone performs up to certain standards, the company will be profitable.

Create, Implement and Communicate the Incentive Compensation Plan Benchmark how other companies are paying base and incentive compensation to their employees. The starting point for creating an incentive plan is to compare the current base compensation and employee bonuses paid in similar companies. 10 Reasons For Incentive Compensation Plans Fail The reasons incentives plans fail are common among companies and include the following: Those are Poor Communication With Employees The Strategy for the Company is Not Developed

Best Practices Do Not Exist The Plan is Ineffective at Driving the Right Behaviors The Company Has a Poor Employee Performance-Evaluation Process Performance is Measured by Profitability Alone The Best People May Work on the Worst Jobs The Plan Promotes Divisional vs. Corporate Behavior Costs are Miscoded and Resources are Hoarded The Incentive Plan Itself Causes Division Incentive Plan Levels Incentive plans for low-level employees include those at the bottom of the organization ; hierarchy, such as staff and first-line supervisors.

For example, a computer programmer might receive a bonus for developing an exceptional cost-control application. Middle-management incentive plans include work group managers. For example, an information technology manager might receive a bonus for his group completing all projects on schedule and under budget. Upper-management plans apply to company executives, such as a controller receiving company stock options for maintaining an exceptional cash flow during a recession Individual Incentive Plans

Individual incentives are used by companies as a means to motivate employees by providing them the opportunity to earn additional income. Incentives often take the form of cash, but they can also be paid in the form of a product or a family vacation. In some cases, incentives can make up the bulk of an employee’s income, such as a salesperson who is compensated on a commission basis. Advantages and Disadvantages of Individualized Incentive Plans Advantages Substantial impact that raises productivity, lowers production costs, and increases earnings of workers.

Less direct supervision is required to maintain reasonable levels of output than under payment by time. In most cases, systems of payment by results, if accompanied by improved organizational. Disadvantages Greater conflict may emerge between employees seeking to maximize output and managers concerned about deteriorating quality levels. Attempts to introduce new technology may be resisted by employees concerned about the impact on production standards. Reduced willingness of employees to suggest new production methods for fear of subsequent increases in production standards.

Increased complaints that equipment is poorly maintained, hindering employee efforts to earn larger incentives. Increased turnover among new employees discouraged by the unwillingness of experienced workers to cooperate in on-the-job training. Elevated levels of mistrust between workers and management. Employee Incentive Plan Even though incentive systems are less popular than they used to be, there are still notable successes. Of course, most sales positions have some part of pay based on commissions, a form of individual incentive.

Perhaps the longest-running success with individual incentives, going back to before World War I, belongs to a company called Lincoln Electric. Incentive Plans & Employee Wants & Needs Incentive plans are a common motivator used by managers and small-business owners. Human nature dictates that when a reward is dangled in front of us, we try to achieve what is necessary to attain that reward. To motivate employees, you must consider employee wants and needs while creating an incentive program.

Contest-Based Incentive Plans Contest-type incentives are commonly used when a small business can afford to award only one standout employee. Employees are told that if they accomplish “X” first, they will receive the reward. This can foster healthy competition in the workforce and help improve productivity. However, over time employees may become disheartened if they never win or if the same person wins over and over again. Thus, you should weigh the risks of this type of reward system very carefully.


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