Compensation, benefits and incentives are a general topic around the workplace. Sometime we narrate these things to retention in particular we have to recognize how it fits into everyday organizational life.
It was not in earlier period that the only type of money that most employees received was what we now call base pay. Base pay refers to the salary and wages that the employer be in agreement to pay. Pay grew with common increases or step progressions, promotions, or reclassifications. Sporadically, organizations used profit sharing, gain sharing, and other experiments. The simply extra may have been $10 or a turkey or ham at Christmas. Pay was simple, straightforward, and easy to administer.
Now we have a diversity of pay practices, each intended to attain a diverse result. We desire to reward employees for working in teams, and, at the similar time, for being ingenious individual contributors. We pay employees for learning new skills and also for attaining project targets. We have yearly incentive plans that pay for meeting organizational goals and, at the similar time, spot awards for special efforts.
The reward process is projected to support employees with organizational strategy by giving incentives for employees to act in the firm’s interest and execute well over time. Expectancy theory carries an apparent message that employees should feel confident that their effort will affect the rewards they receive. Perceptions of equity are consequently crucial in an employee’s decision to remain and produce valuable work.
Equity is a multidimensional put up, taking on external equity the extent to which a firm pays employees the rate they would get in the external labor market, internal impartiality the extent to which a firm distinguishes pay between employees on the base of performance in similar jobs, and individual impartiality the extent to which employees are rewarded proportionately to their individual performance (Dean and Snell 1993).
As of the changing demands of performance on employees in companies, discernment of equity in its three forms might become perplexed, as job roles and job interdependence become more diverse and flexible. Since employees would imagine that as their job changes, so will their rewards, planning reward systems in environments presents a major challenge to organizations. In organization environments, a finest is placed on individuals who are capable to operate in indistinct circumstances who are competent to take benefit of loose job descriptions given by their employers.
In Organizations, it is expected, that there is emphasis on individually evenhanded rewards as a means of recruiting and keeping highly competent employees would be required.
Rewards can be categorized under three broad heading: performance reliant rewards, which overtly reward through performance outputs; job-contingent rewards, where pay is conditional on job classification; and person-contingent rewards, in which pay is reliant on the competencies a person has ( Dean and Snell 1993). As both output orientation and job classification might be complex to measure precisely in high-velocity conditions, the viewpoint of person-contingent rewards, which might support the values of learning, flexibility, and originality, may be best suited to rapid changing conditions.
Condly, Clark & Stolovitch (2003) describe three types of incentive: (1) monetary (cash); (2) non-monetary tangible (rewards such as restaurant coupons for meals or vacation trips); and (3) non-monetary intangible (“employee of the week” recognition, positive performance reviews, and public praise from management).
Every time we add a pay practice that makes economic logic for one group of employees, we are supposed to put other employees at a disadvantage. Employees who thought that their pay was satisfactory become dissatisfied with it as they learn about opportunities for pay that they cannot share in. Having a diversity of reasons for paying employees inexorably creates invidious comparisons. After a while we find ourselves with a number of pay practices that do not appear to work for us.
Have inconsistent goals.
Are hard to control.
Increase labor costs more than we consider they should.
Are not constant with our mission and values.
Cause confidence problems between the haves and have-nots.
Incentives is significant, but the impact of numerous of our pay practices is unpredictable. We are not at all sure if we are paying for something we could have attained even if we were not paying for it. If we have a restricted objective we may be capable to measure our results. If we use retention bonuses, we can work out the percentage of employees who stay for the retention period. The majority of the time, though, our purposes is more common and vague. We institute pay practices to:
Motivate employees to be prolific, with merit programs or incentive plans.
Send a message regarding what is significant to the organization (e.g., improving customer service, improving our safety record).
These objectives are affected by numerous factors within our complex organizations. And, regardless of much research and study on pay, the academic and professional literature does not give us much control on the effectiveness of any particular method.
Money as a motivational tool has genuine limits in composite organizations. Though, money can be an effectual motivator under some circumstances. It can be an influential method of retaining employees when we use it narrowly, selectively, and for immediate goals. We can use it to keep specific employees for specific purposes for specific periods of time. We can do that through ingenious financial incentive plans.
Such plans feature:
Financial incentives that is noteworthy to employees and too large for other organizations to simply “buy out.”
Goals that employees can have a rational expectation of achieving and that are obviously linked to the employees’ performance.
Incentives are a process of distributing pay. If we think of paying for diverse types of performance with diverse forms of pay, then Risk and Reward.
Whenever we pay an incentive we can ask ourselves the question: Would the employee have stayed and worked so hard on the project if we did not have the incentive? The only answer is that neither we nor the employee knows for sure. As people accountable for results, we have to consider the alternatives, consider all the costs and apply our best judgment.
Incentives fit in with base pay, merit raises, and gain sharing as just one way of matching compensation to performance.
It could be argued that incentives have a benefit over most other pay practices. In an incentive plan, if the goal is not attained the money is not paid. As a usual practice we hire employees and give promotional increases in the anticipation that performance will match the pay.
Incentive plans are affirmed as “if-then.” If you attain the objective then you will get a reward. It is this restricted form that gives us the ability to retain employees while we obtain the benefit of their contribution.
Numerous organizations, including nonprofits, have yearly incentive plans. They are built on the set objectives of the business plan. Distinctive goals are linked to: customer service, safety, market penetration, turnaround time, value, or cost cutting. The usual potential payout is less than 5% of salary. Annual incentive plans are a practical part of the overall pay strategy, but the payout is too low to retain employees. Two types of cash incentives that do have the prospective to retain employees are:
Project completion incentives. If you stay eight months, throughout the end of the project, we will give you $5000.
Stock options. We will give you options on 1000 shares of our stock. If we prosper, the options will be worth a lot of money.
The advantage of project incentives is that we can aim the employees we desire to retain. Unlike our overall compensation philosophy, flextime, and training, which are accessible to everyone, project incentives are customized to the employees and the circumstances. Usually, the incentive is for a dollar amount to be salaried at a certain date. Employees have rational expectations of reaching the goal and earning the bonus. For instance, we require three employees with specific skills to start a new sharing center. We give each of them an incentive to stay: “If you stay with us for 13 months to complete the project, we will pay you $10,000.”
The design of project completion plans is simple: If the employee stays with the project for the predetermined period, then he or she gets the predetermined bonus.
At the end of 13 months we can not care if the employees persist with us. Their skills might still be advantageous, but not decisive to our success. Or, once the project is complete, there is no work left for the employees and we desire them to leave. Another instance: We want employees to stay with us through a merger. At the end, their jobs will go away.
Stock options can formulate employees rich. Or, they might be worth nothing. Once restricted to senior management, stock options are offered to growingly employees, and in some organizations to all employees.
An option is a right to buy a stock at an explicit price, the exercise price. By itself, an option has no value. Options gain value while the market price exceeds the exercise price. If the business does well, the market for the stock grows. Employees can exercise their options to buy the stock, and then sell it at a profit. They obtain the difference between the market price and the exercise price. Employees usually have to be on the payroll while they exercise their options. So, stock options retain employees who see the rational possibility that the stock price will rise, facilitating them to sell the stock and make money.
Besides incentive, competition is also considerable factor in the Workplace. In spite of the great number of contemporary writings depicting competitive employees “backstabbing their way to the top” (Petersen, 1988, p. A1). As Lipman-Blumen ( 1988) observed, “women hold the title for collaborative, causative, and mentoring behavior” (pp. 24 – 25 ).
In a sample, 20 out of 23 of the women interviewed reported that there was “completely” no competition at work. When asked whether there were feelings of competition in the workplace, the “no” was both instantaneous and obvious. In the overwhelming majority of cases, respondents designated that there was “definitely cooperation” and that they “never sensed competition.” One woman described the office relationships as distinguished by “immense loyalty,” another labeled the atmosphere as one reflecting “team spirit.”
Amongst the reasonable explanations for the lack of competition reported is the apparent delineation between the roles of director and support staff. In a series of interviews performed with young women in a cooperative program training to be secretaries, O’Leary (1987) asked concerning their reactions when they found themselves assigned to a woman boss for a week. The criterion they used to evaluate women bosses was particularly different than those they used to evaluate men. They reported making instantaneous judgments about the women–negative judgments based on feelings of antagonism when the boss resembled them too directly in age, experience (or lack thereof) and appearance.
Whilst the woman boss was clearly older, more experienced, or looked the part of boss (i.e., was professionally groomed and attired), that is when her role was obviously delineated, the secretaries-in-training were more completely disposed and were less expected to report feelings of competition.
A substitute explanation for the absence of competition is the lack of any expectation for development ( Kanter, 1977). This is illustrated by a comment from one secretary:
[There is] the feeling that we aren’t going anywhere. This job is not as important as a career. It’s nothing worth creating a negative relationship over. It’s just a job, which is very different from a sense of a profession and a need to climb.
These two factors are consistent in the view of one woman who noted, “Most of the roles are much defined. There is not any sense that anyone would be moving up or trying to show up another person in order to look better than anyone else.” Another woman observed that “there is no competition because no one wants my job.”
The role separation between women was stronger for secretaries and bosses than for secretaries and co-workers. It did not appear to occur to anyone that they might be competitive with their bosses; their bosses held an edge, both in terms of education and experience. “I am not in a position to struggle with my boss for anything,” said one secretary.
Numerous of the secretaries reported that everyone “works together to get the job done,” “to attain the office goals.” Apparently this extends to the basic “office-keeping” tasks such as photocopying, sharpening pencils, and making coffee. These were significant issues to many of the respondents. They were very aware of the “demeaning” quality of these tasks, and when probable, they were grateful to be spared these responsibilities.
For instance, one secretary told the story of being asked to sharpen her boss’s pencils. Subsequent to she politely refused, she ordered her boss an electric pencil sharpener. She reported that this was an isolated incident; both boss and secretary now sharpen their own pencils. In another office, “coffee” was an issue. The division of labor is such that the first one in makes the coffee; while the pot runs out, the person who pours the last cup makes a fresh pot. Cleaning the coffee pot at the end of the day, etcetera, is done by whoever has “KP” duty, and detrimental assignment that is rotated weekly.
the majority of the secretaries viewed this cooperation and community spirit as valuable, though one woman remarked that sometimes they spend so much energy being nice to each other that job tasks do not get done. In her ideal work world “you don’t have to be so super-careful concerning feelings if it’s pretty clear what the objective is in terms of getting something done.” Another commented, “Because we’re all so personal, at times it’s hard to be matter of fact about things.” opposing to what might be expected, this spirit of cooperation was not based on relationship of association as much as a more bounded sense of community.
However, the majority participatory workplaces reduce pay and status differentials among employees, mainly between workers and managers, relative to nonparticipatory workplaces. Smaller differentials are linked with participation for three related reasons.
First, narrow differences in wages and status assist develop an atmosphere of trust and confidence between workers and management, supporting the atmosphere of participation. Large differences in status can restrain participation. As employee involvement increases, management relies more on the good will and cooperation of employees. Employees often feel large wage differentials are unfair, and employees who consider disadvantaged are less encouraging of the goals of the highly rewarded group.
Second, bonuses based on group productivity give workers incentives to work for group goals and give incentives for workers to monitor and discipline free riders. Narrow wage dispersal promotes cooperation, while large wage differences and competition for promotions can diminish cooperation, as workers endeavor to win the bonus or promotion “tournament.”
The way we allocate money tells employees what we value in our organizations. The phrase “follow the money” means that if we know how management distributes money we distinguish what management really wants.
It is appealing to note how closely the case study observations fit together with the general conclusions from recurring game theory. The typical gain-sharing plan emphasizes employee involvement as well as the group reward structure. Worker participation is usually seen as an essential component in successful Scanlon plans. Practitioners lean to indicate that otherwise well-designed gain-sharing-like plans can fail if trust and cooperation are not engendered during the implementation phase (Rosabeth Moss Kanter, 1987).
FitzRoy and Kraft, in their West German case study, argue that the traditional division of labor inhibits the worker interaction and collective response that are essential to produce a positive profit sharing effect on productivity (FitzRoy, FR and Kraft, K. 1985). Case studies usually conclude that profit sharing can assist to improve productivity–in an environment with the proper corporate culture.
A current piece of conformist wisdom is that group incentives like profit sharing are productive, whereas individual incentives like piecework are counterproductive. Constant with this, there has recently been a distinct growth of group incentive systems.
Many observers report that in the fast changing work world a great need exists for a highly flexible, cooperative labor force, flexible to new contingencies and not hampered by rigid work rules (Propper and Wilson 2003). Several assert as an empirical generalization that particularly in the fast-growing service and information sectors–the main probable sources of improved productivity now come from interactive team and communal efforts at the workplace, which are hard to segregate and encourage with individual incentives.
According to this scenario, then, profit sharing, by promoting group values completely related to group productivity, may be becoming a significant part of the new work scene.
However, the mechanisms translating incentives into increased productivity are inadequately understood. The literature emphasizes such factors as increased worker association, more labor-management cooperation, heightened monitoring of fellow workers, more information sharing, working smarter, greater awareness of and interest in the company’s productivity, and improved corporate culture.
Most observers agree that performance-related pay plans are more probable to lead to improved productivity than pay plans that are not tied to appropriate performance measures. But it is as well a common observation that background organization conditions can significantly persuade the pay performance link.
Condly, S., Clark, R., & Stolovitch, H.(2003). The effects of incentives on workplace performance: a meta-analytical review of research studies. Performance Improvement Quarterly Volume 16(3) 46-63
Dean and Snell ( 1993). “‘Integrated Manufacturing and Human Resource Management: A Human Capital Perspective'”, Academy of Management Journal, 35: 467-504.
FitzRoy, FR and Kraft, K. (1985), Participation and division of labor, Industrial. Relations Journal 16, pp 68-74
Kanter R. M. ( 1977). Men and women of the corporation. New York: Basic Books.
Lipman-Blumen J. ( 1988, August). Connective leadership: A female perspective for an interdependent world. Invited Address, Division 35, American Psychological Association annual convention, Atlanta, GA.
O’Leary V. E. ( 1987). [Secretarial students’ perceptions of women and men bosses]. Unpublished data, Boston University.
Petersen K. S. ( 1988, December 30). Sisterhood vs. ‘betrayal’ at the office. USA Today, pp. 1A, 2A.
Propper, C. and Wilson D. (2003), ‘The use and usefulness of performance measures in the public sector’, Oxford Review of Economic Policy, 19, pp. 250-267.
Rosabeth Moss Kanter, “The Attack on Pay,” Harvard Business Review, vol. 65 ( March-April 1987), pp. 60-67.