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Accounting Strategy and Control - Do You Believe That Incentive Pay Is Truly Effort-Inducing; That Is, Drive Employees to Perform at Their Best?

Autor:   •  December 7, 2017  •  1,087 Words (5 Pages)  •  391 Views

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Commission, a type of incentive pay, given mostly to salesman helps promote innovation and creativity. A salesman whose pay depends on how much he sells will put in effort to come up with new and innovative ideas to sell his product in order to receive a higher commission. Incentive pay changes the perspective of employees and attitude towards their work.

Although incentive pay is good, there a several loopholes to such a pay program as well. Incentives may not work to motivate employees who simply lack the skill and resources to perform a particular task. No amount of incentives will motivate an employee who normally works at managerial level to perform a production task and vice versa simply because he is unskilled at it. Incentives such as profit sharing depend on the performance of all the departments in an organization. The bad performance of one department may adversely affect the profits, which in turn affects all the employees. In the Lincoln electric case, a piece worker Jorge Espionoza mentioned that piece workers had to depend on other people on the line and suppliers and sometimes they got bad steel which would put the workers output down and as a result their ratings would suffer.[2] The employees are sometimes punished for that which is beyond their control. Instead of being a motivator, profits can sometimes discourage workers as it depends on the efforts of the whole organization. If these concerns are properly addressed an incentive pay program will be able to achieve the desired results.

Incentive pay programs are difficult to establish and the company must take into account several factors before devising a good incentive pay plan. A good plan requires that a company group its employees according to their nature of work, determine the rewards that will motivate the group and assign suitable rewards to each group. The incentive must be of value to the employees. If employees feel the incentive is valuable they will put in extra effort. The employees must also believe that their efforts will bring them the incentives. The higher they believe they will receive the benefits the more effort they will put into their work. Incentive pay programs will work only if there is effective communication between management and employees. The management must clearly explain the program to the employees. The employees must know what is expected from them and how their work will lead to pay.

Setting up a good incentive pay program isn’t always simple, but once it is designed and put in place the company will reap a lot of benefits. With a well-run incentive pay scheme, employees can me motivated to outperform expectations that has a beneficial effect for both, themselves and the company. Incentive pay plan goes a long way in giving that extra push needed by companies today in the ever-changing competitive environments. It helps to direct employee efforts. Incentive pay, thus, can truly induce effort and motivate employees to increase productivity if the program is properly designed, implemented and maintained. Incentive pay inspires company employees to challenge themselves, realize their true capabilities and perform well. “People are people, and they respond to incentives.”[3]

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