In the modern competitive business world, employee compensation is at the core of the success of any organization. Many enterprises have used pay to lure top-notch employees from others to take advantage of their skills. Moreover, some employees have left some companies due to poor pay and incentive plans. Consequently, human resources managers are always on toes to ensure that their organizations are at par in relation to their employee pay and benefits programs. A critical approach that such managers have upheld is the use of incentive pay meant to retain their employees. This essay discusses various issues related to employee incentive pay and benefits.
The two methods that a human resources manager may use to determine incentive pay include individual performance and group performance. Individual performance relates to how an employee is able to meet his job targets ( Gupta & Shaw, 2014). Staff who attain or surpass the laid down individual performance objectives are rewarded. They are paid bonuses, commissions, piece work rates, and merit pay. In such plans performance expectations are clearly spelled out and group goals are not considered. Moreover, such managers may use group performance to determine incentive pay. Such incentives include team awards, bonuses, and gain sharing. This is an important method of incentive pay since it promotes collaboration among company staff ( Gupta & Shaw, 2014). Team incentive pay is determined by the ability of the group to complete a task successfully and cost savings.
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The principal manner in which the two methods discussed above take into consideration individual, group, and company performance is that the performance of the enterprise is determined by its stock price and profitability. As its stock prices grow, its value grows, as well as when profits are obtained by the company; it means it is efficiently supplying its goods and services that are in demand ( Gupta & Shaw, 2014). As a result, everyone benefits since goals are being met, and this improves the enterprise’s stock prices and profit.
Additionally, there are various core legal requirements affecting employee benefits in today’s competitive environment. State and Federal laws spell out some benefits for employees. The Employee Retirement Income Security Act helps to ensure that fiduciary duties on employee welfare and retirement benefits are adhered to. The Consolidated Omnibus Budget Reconciliation Act mandates employers to offer healthcare coverage to workers who are exiting or retiring, but cannot be entitled to healthcare plans. The Health Insurance Portability and Accountability Act ensure that employees can move from one company to another without the fear of losing their health benefits. Therefore, health insurance is continuous ( Frye, 2004). Furthermore, there are various legally mandated benefits that the company must currently offer to its employees. One, Social Security helps employees who have retired. Two, unemployment insurance is critical to employees who have been laid-off. Three, Compensation insurance is pertinent since it assists workers who have been hurt in their line of duty. Employers are also mandated to offer unpaid leave for some medical and family needs. Since the benefits are mandated by the law, organizations cannot obtain an advantage by providing them, nor can they create their nature. Therefore, their concern is to comply with them. Similarly, there are additional benefits that the organization should consider providing to its employees. However, this category of benefits is not required by law ( Frye, 2004). They include retirement plans, life insurance, health insurance, and paid leave.
Moreover, there are important concepts that a company must consider when designing benefit plans. The considerations are critical since such benefits should be aligned to organizational objectives, budget, and employees’ expectations ( Frye, 2004). First, employee benefit plans should start by considering basic, federally stipulated employee benefits. This is an important concept because the organization would not operate without complying with such benefits. Second, it is pertinent to consider what optimal benefits are necessary to be included. In some industries, some optimal benefits have become a necessity, and it may be hard to hire and retain talented employees without such benefits. For instance, retirement plans, life insurance, and flexible compensation plans are common benefit plans in many industries. Third, a corporation has to consider including additional benefits to the plan. After the plan has taken care of the basics, the company may consider adding other benefits, including tuition reimbursements, wellness programs, legal insurance, telecommuting options, and child-care subsidies. Such plans can assist the corporation to have an additional edge in increasing employee morale and lowering employee turnover. Lastly, a company needs to access what benefits the workers value. Different people find different benefit plans to be of interest ( Frye, 2004). Therefore, having an understanding of what excites them is pertinent.
The efficiency of conventional techniques for effectively communicating compensation and benefit plans to employees are believed to be deficient in various aspects. The human resources manager may be impressed with the benefit plans provided by the organization and the associated costs ( Frye, 2004). However, it is possible that the modes of communication used do not deliver the relevant information to the employees, and they are not well informed regarding the benefits plan. Most organizations use written channels of communication to offer information regarding such plans to their staff. However, most workers are only interested on the benefits themselves and they may not spend much of their time reading about the plans. Therefore, human resources managers who try to pass out information through writing may find it challenging. Most employees do not even spend time opening their emails to read about changes in their benefits plans, and this becomes worse when managers pass information using notices. It is a fact that the notices would not even be noticed by some of the staff ( Frye, 2004). As a result, they would not read them, and they would not have obtained the necessary information that the manager wanted to pass to them.
A research conducted by Tremblay, Director of Human Resources at Dupray, shows that less than 12% of his staff opened emails regarding benefit plans he sent to them. As a result, majority of them kept knocking at the human resources department, seeking information about their benefit plans ( Heneman, Ledford Jr, & Gresham, 2002). Consequently, staffs in the department were overwhelmed by such an occurrence. This is a common phenomenon to may human resources managers. Insufficient communication does not only affect efficiency, but also brings about a benefits plan knowledge gap among workers. The struggle to pass information to employee regarding their benefits plan is a common problem to many human resource managers. The ADP Research Institute notes that 81% of human resources decision-makers in big corporations believe that it is pertinent that workers understand their benefit plans ( Heneman, Ledford Jr, & Gresham, 2002).
There are approaches that can assist leaders to come up with solutions to problems that affect communication of employee’s benefits. Tremblay chose to disapprove the belief that there is nothing like free lunch. In 2016, he created online questions regarding information contained in benefit plans emails and giving staff fifty or twenty-five-dollar meal vouchers if they performed well. Consequently, there was an increase of between 85% and 95% in the rate of the number of emails that were opened by the employees ( Heneman, Ledford Jr, & Gresham, 2002). He adds that people are interested in the free lunch, but above all, they are reading the company’s communications.
Similarly, ethical concerns are an important issue to most organizations. In most of them, incentive pay and executives lead to ethical dilemmas since executives may prove to be dishonest in their dealings. Previously, there have been many incidences where company executives have been involved in the inflation of company stock, making them look valuable to buyers than they really are, to lure them to purchase them ( Banker, Lee, Potter, & Srinivasan, 2000). This means that incentive pay may lead to organizational managers acting in unethical ways to earn increased income. Moreover, when employees are aware that they would not be paid the incentives stipulated by the company if they do not reach their targets, they are more likely to be involved in other unscrupulous business dealings. It is true that every employee wants to be paid more, and this means that he or she would go an extra mile to ensure that he obtains the incentive ( Banker, Lee, Potter, & Srinivasan, 2000). In the long-run, such employees may not value ethics in their dealings with customers.
Furthermore, an ethical concern that may arise when incentive pay takes a large portion of employees’ total compensation is insider trading. If a company pays employee benefits to its executives based on stock options, they may sell or buy them based on the knowledge that they possess regarding the success of the company in the future. This means that some of the executives may use their positions and the fact that the organization allows them to own stock to act in ways that would benefit them at the expense of the public and the company itself. In the long-run, such acts when discovered by the public, would not only have a negatively impact on the reputation of the executives, but also the corporation ( Banker, Lee, Potter, & Srinivasan, 2000). As a result, the stock prices of such an enterprise would dwindle.
Some of the recommendations for ways the company might mitigate or reduce these risks include coming up with a system of checks and balances to ensure that the executives do not inflate stock prices to increase their incentive pay and to prevent them from using insider trading ( Banker, Lee, Potter, & Srinivasan, 2000). Such a system would promote ethical behavior in the enterprise since there is always an individual, who monitors the behavior of others in the organization, and any discrepancies in behavior from the norm would be noticed and the necessary remedies sought. Similarly, another way of reducing the possibility of executives being involved in unethical behavior is the use of an incentive plan that puts into consideration an array of factors in determining incentive pay, and not only on stock prices.
In conclusion, incentive plans are an ideal way to recognize the role played by subordinates in an organization. Embracing such plans would ensure that corporations increase their productivity since workers’ morale is at its best. Many studies regarding employee performance and incentive pay have shown that when a company links performance of a worker to some sort of a positive incentive, it has some form of influence on the behavior of the employee, and that effect is usually positive. Moreover, human resources managers can use both group and individual performance to determine incentive pay. These modes of pay can be beneficial since they take care of personal, organizational, and group objectives of growth. As they seek growth of their enterprises, managers need to consider incentives that they are legally mandated to give to their subordinates and the ones that industry forces have necessitated. Such considerations are important to ensure that the company retains and attracts high caliber staff. However, organizational incentive plans have to adhere to its goals, budget, and the needs of its staff. Such factors have to be accessed to ensure that the plans succeed in the long-run.
References
Banker, R. D., Lee, S. Y., Potter, G., & Srinivasan, D. (2000). An empirical analysis of continuing improvements following the implementation of a performance-based compensation plan. Journal of Accounting and Economics , 30 (3), 315-350.
Frye, M. B. (2004). Equity ‐ based compensation for employees: firm performance and determinants. Journal of Financial Research , 27 (1), 31-54.
Gupta, N., & Shaw, J. D. (2014). Employee compensation: The neglected area of HRM research. Human Resource Management Review , 24 (1), 1-4.
Heneman, R. L., Ledford Jr, G. E., & Gresham, M. T. (2002). The changing nature of work and its effects on compensation design and delivery. Strategic reward management: Design, implementation, and evaluation , 35-73.
