Incentive Pays - Case Study Example

Introduction

Incentive pay is additional benefits given to employees by their employers to promote desired behavior. Competition among business entities has pushed organization into introducing incentive pay to ensure they retain a talented and qualified pool of workers. Organization are applying various methods to determine incentive compensation taking into consideration the legal and the additional benefits. The introduction of incentive pay has presented organizations with unethical and juridical issues.

Methods an HR professional could use to determine incentive pay.

Incentive pay is aimed at increasing the staff performance and influence their behavioral performance. Incentive pay encourages a performance culture since employees work towards meeting the performance standards (Ogbonnaya, Daniels and Nielsen, 2017). There are two main methods that managers may use to determine the type of incentive pay for their employees. These include Group performance and individual performance. Group performance incentives are incentives that are given to employees aimed at increasing collaboration among the staff throughout the company. These incentives include bonuses, team awards and gain sharing. Team awards apply various performance measures such as cost savings, successful completion of projects and meeting of deadlines. Gain sharing pulls together the interests of all the stakeholders and reduces the costs brought about by healthcare. This improves individual and group performance through costs saving factors and satisfying patients. The manager should ensure that there are fixed incentives for every employee in the organization who achieves the set objectives.

Individual performance method incorporates incentives such as standard hour plans; merit pays, sales commissions, piecework rates and bonuses. These incentives may be given to workers once they meet the set targets. In such cases, the expectations of the company are clear to every employee, and everything is based on goal expectations. The human resource manager should ensure that the employee’s performance is in line with the set organizational performance and the worker gets an incentive for every level surpassed by the staff (Ogbonnaya et al. 2017).

To ensure that the incentive pay takes into consideration individual, group and company performance, the actual organizational performance and the expected performance should be taken into account. Every team and people should be aware of the organizational standards and the company needs that need to be attained (Larkin and Pierce, 2015). The manager should apply efficient metrics and measures for any incentive plan, and the organization should have a proper understanding of the core values. The incentive program chosen should help individuals look at themselves and how to improve their performance as well as the group’s performance.

Legal requirements affecting employee benefits in today’s competitive environment

In today’s competitive world, various legal requirements affect employee’s benefits. The legal benefits ensure that employees are protected from economic hardships and provide the employees with retirement income and medical care. Human resource managers should ensure that they comply with all the employment laws where they operate (Bryant and Allen, 2013). In the administration of these benefits, the managers need to be aware of the current laws and their effects. According to Terera and Ngirande (2014), employees enjoy legal benefits such as social security, workers compensation, medical insurance, anti-discrimination laws, unemployment insurance and other health care requirements. Nonexempt employees also enjoy overtime pay based on the Fair Labor Standards Act.

Social security provides support to employees when they retire and are no longer working. Unemployment insurance is of help to employees when they are laid off while workers compensation takes care of injured employees while working.it is the responsibility of the employer to provide staff with family and medical need through unpaid leave. For an organization that employs more than 50 workers, the Affordable Care Act stipulates that they should be provided with health insurance. The family and medical leave applies to private companies with over 50 employees. The employees are entitled to unpaid leave within a year or family and medical reasons. The legal requirements governing these benefits differ and may provide a wider coverage to the eligible employees (Tirole, 2016).

Additional benefits that the organization should consider providing to its employees

Organizational benefits to their employees are elective and are not included in the employees’ remunerations. Organizations offer employees some benefits to make the organization more attractive and to retain the best-talented pool of staff. Besides the legal benefits organizations may provide their employees with a retirement plan, health insurance, employee assistance plans (EAPs), sick leave, paid or non-paid vacation, education funding, disability income protection and much more. Although providing these benefits is expensive to any organization, the organization benefits intrinsically since they can maintain highly talented and qualified workers (Terera and Ngirande, 2014).

Employee Assistance programs are short-term, confidential counselling services offered to staff with personal problems that are affecting the organizational performance. These support services help reduce stress and conflict among employees and thus leads to reduced turnover rates and absenteeism. The retirement plan is an agreement by the employer to provide an employee with an income after they separate with the company. Most retirement plans have a form of guaranteed income. Both the employer and the worker contribute money into the fund. With the rising healthcare costs, companies have been forced to revise their health care plans. Most companies are now offering insurance covers to save costs and ensure that employees are more responsible (Kwon and Hein, 2013).

Concepts to consider when designing a benefit plan

There are several ideas that a business enterprise may take into account when designing benefit plans. These ideas include organizational goals, benefit costs, employee’s current and future expectations, and the available budget. Organizations need to have smart goals that can be achieved. The business strategies should be aligned with the organizational goals. Additionally, employee’s performance should be measured based on the corporate goals (Kwon and Hein, 2013). Every business operates within the set budget. The employee's benefit plan should be within the budget to avoid future constraints and at the same time ensure that the organization should be profitable. The choices any company make with regards to employees benefits should be based on employees expectations and values. The benefit plans should attract and ensure that workers remain within the organization. Human resource managers should ensure that the established benefits should be monitored to ensure that they achieve the intended purposes. Bryant and Allen (2013) argue that benefit costs such as healthcare cost have pushed companies to downsize and lose profits. Organizations should get information about their costs from the Bureau of labor statistics and the chamber of commerce which will help them make decisions affecting employees.

Communicating compensation and benefit plans to employees.

Different companies apply various methods to communicate compensation and benefits package to their employees. Effective communication helps employees believe in their organization (Bryant and Allen, 2013). Techniques use for effective communication of compensation and benefits packages by different companies are; first, audio-visual presentations where employees are allowed to watch audiovisual presentations rather than studying the printed copies. The visual presentation explains to the employees the changes in the compensation and benefits plan and the future expectation. Secondly, communication may be done through personal meeting with staff where employees are informed of the changes face to face regarding their compensation and benefits. Thirdly an organization may communicate to employees through printed materials that give a clear explanation of the benefits and compensation plans. These printed materials may include brochures, memos and personal letters. Lastly, organizations may use emails whereby all the employees are sent electronic mails informing them of any changes in the compensation and benefits. Online communication is faster and efficient if all the staff are connected to the organizational servers. A combination of these methods of communication improves employees understanding and this makes them more empowered and helps create a positive work environment (Bryant and Allen, 2013).

Ethical risks of making incentive pay a significant portion of employees’ total compensation.

Ethical issues have raised numerous concerns in the organizations. One of the ethical risks of tying pay to incentive is that the top managers and other shareholders may inflate the stocks. Most executives have been known to raise their stocks to capture a wider market (Tirole, 2016). Additionally, the shareholders are more likely to be dishonest about the actual business profits thus making the stock seem a hefty investment for buyers. Another major ethical risk in tying compensation to incentive pay is that it poses difficulties in measuring individual’s performance. When an employee is given an incentive for surpassing the set targets, they are likely to rush through their job to surpass the objectives. The worker may thus poorly perform their tasks to receive more incentives. This may lead to inferior products and in most instances may damage the company’s reputation. In extreme cases, the employee's actions may attract law suits, and the company may incur huge losses in litigation costs (Tirole, 2016).

Mitigating or reducing ethical risks in the company

To reduce the risks associated with performance measure, the manager should conduct random checks of the individual’s performance. This will ensure that employees who have not completed or rushed their works do not get any incentive pay. The manager should also avoid paying for uncompleted tasks to demonstrate that the business enterprise holds with high regard the organizational code of conduct and ethics have to be followed to receive incentive pay. To deal with unethical issues with regards to stocks, strict penalties should be meted on offenders. The organization should also ensure that stocks are regulated (Larkin and Pierce, 2015).

Conclusion

Organization and human resource managers should make sure that employees are aware of their benefits and compensation that make up their benefit packages. When designing incentive pay for employees organizations should consider the available budget, their employee's expectations and the ethical principles. Communication is crucial to ensure employees are well informed of any changes in compensation and benefits in a timely and transparent manner.