Compensation Plans: Targeting Incentives Essay

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

The right compensation program will depend on the organization’s business strategy and goals. To achieve these, an organization must recruit and select the best possible employees. To attract such employees, there must be an attractive compensation plan. Competitors will be offering different payment options, this may be based on pay rate or special perks, and a company’s stock options. Organizations must be aggressive yet reasonable to compete with competitors. Retaining and encouraging employees to perform at their best may be achieved through an immediate incentive award

To start with, we must first understand what a managerial strategy means and how we can apply the appropriately.

A well-articulated compensation philosophy drives organizational success by aligning pay and other rewards with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company's culture and values (Kaplan, 2006, p.32). Recognizing and rewarding achievement is the cornerstone of the company A’s compensation philosophy. The mission of the company is to attract, select, place and promote all individuals based on their qualifications. The company believes that performance-based compensation helps attract, develop and retain talented professionals. In addition to base pay which based upon local market conditions and targeted to be above market, the company provides the following types of potential compensation to reward performance:

The problem with most financial incentive plans is that they become an expectation, which means they are no longer motivating better performance but merely maintaining the status quo. Staff may come to view the additional cash as part of their normal compensation. They may even start depending on it. After the plan expires, morale (and results) can suffer as staff perceive that you took something away from them.

The pay-for-performance incentive compensation program is designed to measure the variations of the healthcare professional performance, as well as motive them in improving the efficiency and the quality of care provided to patient by decreasing medical errors (Abduljawad & Al-Assaf, May 2011). Healthcare professional are given incentives based on good medical outcome and exceptional performance. It is an effective compensation program, because it improves retention, as well as attract new healthcare professionals to the organization; therefore, by giving healthcare professionals an incentive, they are more likely to remain engaged with their profession, because the feel satisfied with their work and that their skills and performance is valued

Incentive pay is key when trying to increase the productivity of a company. Using incentives can increase a worker’s performance on a job, thus making the company more profitable. In an article written by Austan Goolsbee, he discusses “the lure of incentive pay” and how it affects a workers performance while doing a certain job. The article seeks to bridge connections between how busses in Chicago and Chile while exploring the different incentives in which they run. According to the article, “bus drivers in Chile are paid in one of two ways: either by the hour or by the passenger.” Goolsbee furthers develops this study by comparing the different notions for which the drivers are paid. If drivers are paid a salary per passenger, then the drivers

The construction company would need to first consider several things before implementing a strategic Compensation plan.

The balanced scorecard is a strategic planning and management system that was developed by Dr. Robert S. Kaplan and Dr. David P. Norton in the early 1990's. Their goal was to provide organizations with a clear understanding of what to measure in order to improve performance and results (Balanced Scorecard Institute 2014). The balanced scorecard is a framework that allows an organization to measure performance and compare it to the organization’s strategic objectives and goals (Kinney and Raiborn 2013, 10).

* Frontline PR is a public relations firm with 150 full time employees, consists mainly of their staff plus some administrative and operations people. Frontline is currently struggling with the cost of health care insurance

Reward Management (RM) has been defined as the distribution of monetary and non-monetary rewards to employees in an effort to align the interests of the employees, the organisation, and its shareholders (O’Neil, 1998). In addition O’Neil (1998) also suggests that a RM system can serve the purpose of attracting prospective job applicants, retaining valuable employees, motivating employees, ensuring legal requirements relating to direct and indirect rewards are not violated, assisting the company in achieving human resource and business objectives, and ultimately assisting the organisation in obtaining a competitive advantage.

Although research generally confirms that pay-for-performance plans can influence greater outcomes, it is unclear how effective different pay plans are relative to each other (Park, 2012). Like most things in business, compensation is something that requires evaluation, study, assessment, strategy, modeling and integration.  Achieving a pay for performance culture does not happen without paying attention to the behaviors, activities, rewards and motivations that have to be linked and reinforced through a well engineered and successfully executed process.  Actually if that process does not tie rewards to shareholder financial objectives, employ the proper mix of compensation elements, result in meaningful dollars, embrace performance that employees can impact and are effectively communicated and reinforced, then the results it produces will likely fall short (Vision Link Advisory Group, 2013).

They are thinking of implement a strategic compensation plan as well as various other options that will allow its organization to focus on its strategic objectives and develop a comprehensive plan, considering base pay, short- and long-term incentives, benefits and growth opportunities. This kind of planning helps ensure that the compensation system will support the organization's long-and short-term objectives without overlap, which would have more than one pay plan driving the same objectives. The ultimate objective of this process is to ensure that the compensation system and other important facets attract and retain the desired employees and that it motivates them to do those things that support the business plan.

1. Incentive compensation is a major practice that has continually been adopted by healthcare organizations, especially for managers. Most of these organizations use this tool as a means of rewarding employees financial for outstanding performance. Generally, incentive compensation involves the use of monetary reward for managers to attain specific established goals. Therefore, incentive compensation can be a motivational tool that benefits health care managers and the entire organization because it enables managers to achieve greater compensation while promoting organizational productivity. As the Chief Executive Officer of a hospital, I would design an incentive compensation program for my management team by aligning the financial rewards with business objectives and people costs. This will involve the use of a comprehensive approach that examines basic pay, health benefits, incentive opportunities, and retirement programs. The alignment of the compensation program is geared towards promoting organizational productivity and employee motivation.

An incentive pay program can reward employees who continue to produce superior work or encourage employees who already produce good work to best. Sometimes, use an incentive system when employees are lack of enthusiasm of getting down to work and improving things. If everyone in the same job classification gets the same pay, there is no real incentive to do an outstanding job (French, 1990). Various incentive plans used to motivate all employees such as production staff, sales staff, administrative staff and managerial and professional staff on an individual basis. To be improved employee work performance, the incentive pay programs need to be fairly matched with the employees’ expectation. Properly designed and maintained incentive pay program has the potential to increase employees’ productivity and work performance.