Incentive pay, commonly referred to as pay-per-performance, is a performance linked recompense approach aimed to improve the productivity and motivation of employees. Incentive pay approaches are often designed to prompt the improvement of employee efforts in the attainment of the organization’s goals in the long term and the short term. The effectiveness of the incentive pay strategy is usually dependent upon two significant processes that are interrelated, and they include performance management and compensation management (Sung, Chai, and Kang, 2017). According to Sung, Chai, and Kang (2017), compensation management is a procedure whose efficacy relies mainly upon accurate evaluations from the performance management process. The effectiveness of performance management procedures, on the other hand, is subsequently relative to the organization's efficiency of the organization's compensation system. In this particular context, I would propose the use of job analysis and job evaluation procedures to assess the employees' incentive pay.
One needs to understand the different tasks, responsibilities, and duties incorporated in a specific job before designing a company's incentive pay rates. The purpose of conducting job analysis is to determine the skill requirement and tasks required for a particular job; this, in turn, aids in the determination of incentive pay within the organization. Job analysis plays a significant role in incentive management strategies in the sense that, it aids in determining pay packages and benefits of employees (Sung, Chai & Kang, 2017). Payment package is dependent upon the job title, job position, and the responsibilities and duties incorporated in a specific job. Job analysis acts as a guide in ascertaining the employee's worth in regards to a particular job. Job analysis includes six steps. The preliminary step involves determining the objectives of specific job analysis; this incorporates delineating objectives that will subsequently determine the type and method of data collection.
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In this instance, the job analysis’ objective will be to determine employee incentive pay strategies. The subsequent step involves reviewing the organizational chart. The organizational chart indicates the company’s labor division, the interrelationship that exists between the jobs, the effectiveness of the job in the organization, and the organization’s hierarchical framework. The organization chart also provides an anteceding job description, and it offers a starting point during the process. The third step involves the selection of representative jobs for the analysis process (Friis, Hansen & Vamosi, 2015). The fourth step incorporates the analysis of jobs using the most preferred data collection method. Some of the examples of methods used in data collection include direct observation, use of questionnaires, and interviews. The subsequent step involves the assessment of the collected data for accuracy through verifying the collected data with the job incumbent. The sixth and final step incorporates the delineation of the job specification and job description to be utilized by the HR in determining incentive pay plans (Friis, Hansen & Vamosi, 2015).
Job evaluation relates to the systematic process of determining the worth or value of a particular job about other existing jobs in the company, and its purpose is to establish a systematic comparison amid jobs by analyzing their relative worth in the development of an incentive pay structure. The human resource manager ought to determine the effective job evaluation strategies for different job groups in the organization. For instance, a skill-based approach will be considered effective for engineering and information systems job families (Friis, Hansen & Vamosi, 2015). External market pricing may be utilized in the establishment of pay rates for uncommon jobs in a particular organization such as a security guard and for jobs where competitive pay is considered significant in the attraction and retention of talent.
The four methods used in job evaluation include ranking, classification, point, and market pricing. The ranking procedure involves the hierarchical ranking of every position within the company from the highest to the lowest based on the job's complexity and overall value followed by the subsequent allocation of incentives. The point method of job evaluation involves the selection of key jobs, the identification of aspects common to all the selected positions, dividing every key element into a various sub-elements, the defining and expressing of every sub-factor along a scale, determine the maximum value of points allocated to each job, and its subsequent conversion into money value (Gittleman & Pierce 2017). The classification method involves the establishment of a predetermined number of job classes or job groups and the assigning of jobs according to the classifications. Market pricing is a procedure that involves the evaluation of the jobs’ external value which subsequently allows the organization to develop incentive pay rates and pay structures that are sensitive to the prevailing market rates. Market pricing also involves the execution of job matching programs (Friis, Hansen & Vamosi, 2015).
Workers are entitled to the provisions of various employment protection law statutes; this includes statutes related to safety and health standards, union representations, overtime and minimum wage provisions, and the protection against illegal discrimination within the workplace. The ERISA, 1974 regulates the benefit plans of employees and the unions and employers involved in the establishment and maintenance of these plans. Employee benefit plans incorporate aspects such as pension plans and welfare strategies. Title VII of the Civil Rights Act of 1964 protects workers from prejudice within the workplace based on sex, color, nationality, race, pregnancy, or religion. Other regulations that protect employees from various forms of discrimination include The Americans with Disabilities Act of 1990, The Age Discrimination in Employment Act of 1967, and the GINA act of 2008 (Gittleman & Pierce, 2015). Gittleman & Pierce (2015) notes that the Equal Pay Act of 1963 provides regulations that foster equal pay for equal tasks performed by individuals of both sexes within a similar working environment. The NLRA provides workers the right to organize unions and negotiates communally, and it empowers the administrative institution. Other statutory acts that address employee benefits include the Family and Medical Leave Act, the Fair Labor Standards Act, and the Older Workers Benefit Protection Act.
Mandatory employee benefits relate to the legal benefit programs all employers are required to provide their workers. Mandatory benefits include employee compensation, unemployment insurance, disability insurance, civic duty benefits, family and medical leave, and social security and Medicare taxes. Employees are required to pay their workers an hourly rate that is not below the stipulated federal minimum wage. The FMLA allows workers a twelve-week job-protected uncompensated leave depending on their eligibility. During the unpaid leave, all group staff benefits are usually continued (Guthrie, Kwon & Sokolowsky, 2017). The long-term and short-term disability insurance is considered a statutory employee benefit in several states in the U.S. The insurance is paid partly by the employees and the employer. In the U.S, all employers are required by law to pay Medicare and social security taxes. All organizations are also required to provide the unemployment insurance benefits to their subsequent employees regardless of their job’s status (part-time or full-time). The unemployment insurance benefit ensures that the availability of funds during an employee’s unemployment period. Employers should also allow their workers to attend to their civic duties.
The additional benefits I would personally recommend are health insurance coverage, retirement plans, paid leave, and dental coverage plans. There are various aspects an organization should consider when designing employee benefit plans. These aspects include aligning the benefit plan with the organization’s objectives, providing core security and fostering employee choice, and educating employees about the benefit programs. Aligning the benefit plan with the company’s objectives allows the company’s leaders to review the approach regularly to ensure it changes consistent with the changing employee requirements and the company’s regulations (Guthrie, Kwon, and Sokolowsky, 2017). Employers should ensure the provision of core security benefits such as health cover plans and retirement plans to its employees as a strategy of attracting talent, retaining employees, and increasing employee performance and productivity within the organization. Educating employees on various benefit programs creates an in-depth understanding on the relevance of the benefits program in fostering the company’s reward policy and goals; this consequently enhances employee appreciation and the program’s value to the entire organization (Gittleman & Pierce, 2015).
There are various methods employed to ensure that the organization communicates their benefits and compensation plans to their respective employees effectively. These methods include marketing and printed documentation; benefit informed meetings, digital communication procedures, corporate benefit websites and portals, total compensation statements, and social networks. Printed documentation enhances the swift dissemination of the company plans to its workers at any period of the year. Printed documentation may be easily edited depending on the adjustments made on the benefits plans (Friis, Hansen &Vamosi, 2015). Benefit-informed meetings enhance the provision of timely feedback regarding the company's benefit approaches, and it fosters the employee inclusion during the benefit-related decision-making processes within the company. Digital communication methods such as mobile apps, emails, and instant messaging foster the timely delivery of information regardless of the employee's location. Corporate benefit websites and portals are considered secure methods of disseminating benefit-related enrollment instructions and data. These websites are usually highly encrypted and structured with a singly-sign-on procedure to protect personal information and user credentials. Total compensation statements incorporate an organized outline of the company's benefits, salary, and other perks on an annual basis (Gittleman & Pierce, 2015).
Making incentive pay an extended portion of the total compensation of the employee may be associated with various ethical risks which include the development of a significant wage gap amid employees and the fair distribution of incentives among employees. Incentives are likely to create an extensive wage gap in the organization which is disproportionate to the levels of productivity amid employees who receive incentives and those who do not receive incentives. Ethical issues may also arise in instances where the incentive pay program does not distribute benefits fairly (Gittleman & Pierce, 2015). For instance, the nature of duties accorded to certain employees may enhance their capacity to earn high incentives as opposed to other employees' assigned duties. To reduce these risks, the organization should evaluate the effectiveness of the incentive pay plan and its associated risks. Secondly, the organization should establish the long-term and short-term goals of the incentive pay plan before its implementation to avoid probable risks.
References
Friis, I., Hansen, A., & Vámosi, T. (2015). On the Effectiveness of Incentive Pay: Exploring Complementarities and Substitution between Management Control System Elements in a Manufacturing Firm. European Accounting Review , 24(2), 241-276.
Gittleman, M., & Pierce, B. (2015). Pay for Performance and Compensation Inequality: Evidence from the ECEC. ILR Review , 68(1), 28-52.
Guthrie, K., Kwon, I., & Sokolowsky, J. (2017). What Does CEOs' Pay-for-Performance Reveal About Shareholders' Attitude Toward Earnings Overstatements? Journal of Business Ethics , 146(2), 419-450.
Sung, S. Y., Choi, J. N., & Kang, S. (2017). Incentive Pay and Firm Performance: Moderating Roles of Procedural Justice Climate and Environmental Turbulence. Human Resource Management , 56(2), 287-305.
