Incentives in Employment Sector - Essay Example

? Incentives in employment sector Introduction According to Bentley McLeod, contracts have become one ofthe key elements on the employment sector especially in the current world (Para 2). Most companies have currently employed a method with the main aim to motive their workers. For instance, in U.S teachers are being awarded with promotions and other benefits as a form of motivation based on their work track records. However, some argue that such practices end up resulting to financial crisis around the globe. Basically, incentives are benefits that are offered with an aim to encourage an employer according to the work they have done. As much as incentives are meant to encourage workers some end up living them in a worse condition than they were before. Provision of incentives in firms In the efficiency wage theory, incentives ensure that workers are able to acquire benefits than what the market wages offer them (Prendergast, 1999, pp 14). Workers receive such rents mainly because it acts as a security even though they have stable jobs. Another encouraging thing about the incentives is that the contracts can always be reviewed basing on the past performances of the workers (Prendergast, 1999, pp 24). Though the workers do not have to fill the change immediately, it is evident that the good performance will always improve their bargain power in order to move his contract to greater heights. What happens to the firms? There are three major theories that are used to give an overview of different form of incentives in firms (Haltiwanger, 1998, pp 330). The theories include the human capital theory, incentive theory and the matching theory. Incentives are basically the main cores of the economy. However, they have not been fully introduced to most of the companies yet. Incentives work very well in employment according to the case study of it’s important by various organizations. Research done to prove this was carried on to assess the productivity impact on the contract (Haltiwanger, 1998, pp 332). The outcome of the research states that it was very hard to have a clear objective of the state of a workers performance. It was also evident that the performances of managing directors with higher incentives cannot be compared to those with lesser incentives; this is mainly because the pay-for performance has always increased the work ratings as most of the employers get to fill the pinch after hiring unprofessional workers (Haltiwanger, 1998, pp 336). As if that is not enough the performance of workers in the entire nation can also be positively affected by the introduction of incentives. However some experts argue that the introduction of incentives should be based on individuals rather than the teams mainly because most of workers would end up being joy riders. For instance a research on the doctors showed that most of them have a higher overhead cost sharing while those who share the costs end up as joy riders. That is why perhaps the effects of incentives in teams are dominated by individuals. Perhaps such benefits should be more technological instead of incentives (Haltiwanger, 1998, pp. 338). Data is vital in any research to prove the importance of incentives that is why there was need for performance contracts. In the urgency theory, it is predicted that most workers face similar problems in productivity that is why such problems are compared to one another. Executive’s data find minimal evidence of the said relative performance evaluation (Haltiwanger, 1998, pp 340). On the contrary, most firms compare the performance of their senior managers to the performance of stock market when determining rewards for them. These firms are more likely to use stock market than competitor’s performance when doing comparison. Another implication of agency theory is, managers who are close to retirement should sign contracts with incentive provisions, which are steeper, and rewards directly tied to performance due to the fact that reputation concerns are not quiet sufficient to provide incentives (Haltiwanger, 1998, pp 342). Contribution to compensation literature points out those incentives. They end up resulting in poor rent-seeking behavior; workers may end up wasting valuable time and resources in attempting to persuade their immediate superiors of their talents and not being productive. This literature implies that firms may use institutional rules that may constrain superiors from rewarding most able employees. Agency theory mainly focuses on monitoring effects on the provision of contracts. Most firms do spend considerable time in trying to find the best possible way of monitoring workers (Haltiwanger, 1998, pp 343). Some workers are monitored based on their counted output while some it is done in a subjective manner by a boss. This may lead to some problems, which may include reluctance to offer bad evaluations or favoritism accusations. There are workers who are monitored frequently; there are some who are monitored annually (Haltiwanger, 1998, pp 346). A great number of individuals are monitored based on their inputs, while in some occupations, workers can do as they please. Estimating productivity would also entail finding a group of workers doing the same job without opportunity for back loading of wages. Assuming that both the self employed and employed do the same job, noticeable difference between the slopes of the two groups may be attributed to the firms desire to back load wages. Studies have shown that the wage profile of the self employed happen to be less steeply sloped than those of the employed this comes basically from the deferred compensation. The main idea behind back loading of wages is that when workers are still young do pay into trust funds that are later on returned (Haltiwanger, 1998, pp 346). This only holds for workers who have worked for the firm for a longer time. For new mature workers chances of back load are very slim. Effect of seniority on workers pay may also come from considering rules in the workplace where promotions and wages do increase with seniority without factoring in productivity (Haltiwanger, 1998, pp 349). Many personnel files do include wage data and job history previously held within the firm. This helps to identify relationship between the job changes and the evolution of wages, which helps the organizations keep track of the workers progress both in productivity and wage growth. Uncertainty and incentives Incentives have their own risks according to the research done. The theories that were done before have their shortcomings in the sense that in both workers need policing from the supervising authorities (Prendergast, 2002, pp 121). Consequently there have been problems that have been brought about by monitoring the workers. In most cases favoritism has been one of the main challenges the workers have to face because during promotions or rather receiving acknowledgement from their seniors, they are judged based, not by their performances no more but rather it is an issue of preference (Prendergast, 2002, pp 125). As if that is not all most of the employers have a tendency of wanting to control the and save the cost by ensuring that their workers receive poor assessment. The main reason for assessing the workers by their employers is basically to make sure that they are penalized for their work, and if anything incentives are given based on h good they perform in their respective workplaces (Prendergast, 2002, pp 122). Though some may argue that incentives have brought more harm than good in the field of employment, it should be noted that it saves both parties in terms of their rights. For instance incentives based on performance will always ensure that employers are able to identify the talents of their workers though favoritism during assessment are minimal and they can only be there at a more personal level and perhaps it has been reported that in some cases the employers are credited based on the reports they forward (Prendergast, 2002, pp 131). The more lies about their workers the more they save the cost of incentives. Therefore, it is true that most of the employers do not evaluate their workers to uplift the talent in them but to suppress them for their own selfish gains (Prendergast, 2002, pp 132). Consequently most workers are not appreciated based on their abilities. Such problems have now been an issue of concern in the employment sector, as a result of this most companies would rather settle for a high pay for performance for the evaluation report has nowadays lost its meaning. Furthermore, the superiority of employers is not that sufficient in providing the justice needed for different workers in different fields (Prendergast, 2002, pp 131). That is the reason why there is a call for a more advanced method of providing incentives in different workplaces altogether. Most workers are always concerned with how accurate the procedure used to evaluate them was, and that is why some argue that it is less risky to do such evaluations on a more unconvincing manner (Prendergast, 2002, p 134). The distribution of duties also has become a major concern for giving out incentives by companies as well as other employers too. For instance, most companies have always had choices in terms of delegating duties to their employers and handing the power to make crucial decisions in some working environments and that is the main reason why most employers have found their way to do things as they please (Prendergast, 2002, pp 136). When the morale of human beings is boosted it is keenly noted that most of them are able to deliver quality services. According Prendergast, 2002, perhaps that is why most of the employers have sought to adapt incentives in their companies to get quality services from their employees (Prendergast, 2002, pp 132). Problems arising after measurements of inputs are low New designs with their own systems of measurements are beneficial especially for most companies (Parker, 1992, pp 599). As long as they are not embraced into an organizational plan, most strategic plans end up being undermined. Measurements are put in a certain position in order to make available a platform where crucial issues can be addressed (Paeker, 1992, pp 601). However, if they are not put into practice problems such as hard working conditions mainly because companies may add to the amount of personnel to raise the output quantity (Soverall, 2007, pp 45). In the long run, they end up risking the quality of their products (Soverall, 2007, pp 57). Furthermore, it will be a problem during outsourcing and sucking of workers too. Types of incentive contracts and problems associated with them The most common incentive contracts used by different companies and industries are for instance, the fixed price that comprises of the maximum guarantee as well as the bonus. However, most companies would prefer the guarantee incentives as it gives them full power to manage their projects. In case, there is a company assigned to do some construction the bonus incentives is given to contractors either before or after work either it might come as an acknowledgement or as a punishment for the poor work done. All the same, this should be completed in a reasonable approach to avoid conflict. Another form of contract is the cost reimbursable contract that is always accompanied with an incentive or not. However, it allows the contractors to hike their costs. The contract can be effective for short term projects only. Performance incentive is also another form of contract that is primarily related to the evaluation of the worker by the employer. It is mainly calculated on the foundation of the value of work performed. Another good example of a contract is the safety incentive contract which impact profoundly on the output of the workers in terms of service. Though it is beneficial for both parties to sign contracts, problems encountered before signing them are such as; having problems with proper time management, contract language, diverse interpretation of the contract by both parties, harsh climatic conditions and there are pressure on the workers trying to make an impression in their various places of work. Furthermore, sacrificing quality work force for speed is not an exemption too. Some of the conditions that take place in the market, hold it that, the supplier is able to either lower the cost of the commodities that they are advertising to a specific customer (Prendergast, 2002, pp 136). This will make the customer feel at ease in dealing with the market within this region because of the benefits. The services given by the supplier has to be of good quality, effective and of use to the customer. This will inspire the customer to be aware of the good performance, and on their part they shall offer motivation to the supplier in different ways. The reimbursement for the act and performance of the supplier of the goods is well seen in provisions set in the prices of the products delivered or the exceptional services done. On the other hand, when the presentations of the deals of the services done are in a way that can only be contemplated by the mind, then reimbursement has to be done in a form of pay (Prendergast, 2002, pp 135). This is for the reason of enthusiasm and hard labor performed by the supplier, or at times there were no effort contributed into the transactions. It cannot be well placed what the performance is entitled to in terms of pay. Bibliography: Haltiwanger, M. ,1998.What happens to firms?.A survey of empirical Evidence on Compensation Policies. Labour Statistics Measurements, 8(1), pp.329-356. Parker, G, 1992. Incentives contracts and Performance Measurements. Political Economy, 100(3), pp598-614. Predergast, C., 1999.Provision of Incentives in firms. Economic Literature, 37(1), pp.7-63. Predergast, C., 2002.Uncirtainity and incentives. Labor Economics, 20(2), pp.115-137. MacLeod, W. Bentley., 2012.?Pay for Performance or Performance for Pay: The Economics of the Employment Contract from Roman Times to Our Time. Accessed on 12th Jan 2013 from: http://video.ias.edu/macleod-lecture-4-26-2012. Soverall, J.K.A.W, 2007. Gaining Productivity.1edTrinidad: Arawak Publications. Read More