Objectives of Incentive Systems - Essay Example

? Incentive systems Introduction Numerous factors have been known to contribute to the success associated with an organization. However, chief among these is the quality of service provided by the concerned organization. This quality of service is owed to the attitude of those working with the organization in relation to work. Thus, individual performance should receive attention and reward that is due. This aids in maintaining the difference between an average or bad worker and a good worker. The benefits of the quality work done ought to be shared between the organization and the employee. An incentive system entails the use of different tools and modalities by human resource throughout the entire level of the organization. Their sole use is the promotion of improvement of results in relation to preset annual objectives associated with the organization. Incentives may be fashioned in four distinct modes, which are material, status, purposive or solidarity. As such, it is consequently self evident that it is in the best interest of organizations to design and implement incentives systems to operate within their structure. There exist several objectives which incentive systems can be designed to achieve. However, this paper will only outline three objectives, which can be considered basic, in relation to the organization. Evaluation Above all else, the primary purpose that incentives are tasked with is rewarding efficiency of an employee. As such, this objective should take the top priority when designing an incentive system. It has been noted that in situations whereby the efficiency of employees is not recognized and subsequently rewarded, the morale of these employees frequently experiences a reduction (KRESSLER 2003, p. 21). This overall effect is to the detriment of the organization as a whole. Rewarding efficiency is an important mechanism of maintaining and subsequently raising the levels of motivation of the workers. Organizations strive to employ skilled labor so as to boost the quality and quantity of their output. However, these employees have thousands of opportunities, aside from their position at the firm, that are available for them. Thus, recognizing their performance is highly instrumental in maintaining their service in the organization. This should be regarded with utmost importance as it has been note that the performance o an organization is directly correlated with the quality of performance of its human resource. Aside from building business in the present situation, treating the human resource as assets to the organization further ensures that the organization will also be viable, with respect to the market, in the future. Recognizing and rewarding efficiency enables the management and employees to work in tandem, resulting into the development of a talented and dedicate workforce, which is focused in achieving organization goals. Aside from raising the motivation levels, rewarding employee efficiency leads to a direct reduction in the rate of attrition. The top management is tasked with, among other responsibilities, planning how to achieve preset goals. However, it is the work force that executes these plans. In the absence of a talented, motivated and dedicated workforce. There are two means that can be employed in rewarding the efficiency of an employee, these are monetary and non-monetary. Monetary rewards can range from a raise in wages to monetary allowances amongst other forms. While non-monetary rewards can range from trophies, certificates to letters of appreciation. When these two mechanisms are combined, in an effort to reward employees, there would be an improved drive to quality performance by employees. The second basic objective of incentive systems entails the reduction of production cost. This is in regards to the cost of producing a single unit of output. The primary goal of all businesses is to minimize total costs and maximize on profits. This enables the firm to be able to maintain its relevance in the industry of operation. It is for this reason that the top management at times engages in cost cutting measures that adversely impact the organization. An example of such measures that negatively impact the organization and the community consist of reducing the number of workers and or using cheap substandard raw materials. However, organizations that strive to operate in line with ethical standards of operation can employ incentive systems to reduce production costs. According to Woodruff Imberman (1988), the reduction of the number of employed workers does not yield a reduction in production costs as is widely thought. Additionally, he notes that a number of organizations that were included in the sample study experienced a reduction in profits when they employed the said cost reduction mechanisms. However, when organizations employ the use of technology by their workforce, they consequently experience a reduction in the cost of production. It is extremely beneficial to the employees and the organization to introduce new technologies in the production process and the waste management level as well. The chief reason why organizations engaged in reducing their work force was to force the remaining work force to work harder. However, as mentioned above, this strategy is often to the detriment of the performance characterizing the organization. Rather than engage in such selfish and adverse measures, firms can opt to instigate their workforce to work harder and smarter thus increasing output while reducing the cost of production (Globerson1985, p.32). An incentive that best suit this mechanism is the payment of any additional time worked by the employee. This is commonly referred to as overtime. Additionally, the organization can embark on educating the workforce on how to effectively manage their time in order to realize increased output. With this being said, it is left at the prerogative of the respective organization to choose which mechanism it will adopt, with respect to reducing production costs. It, however, is in the best interest of the organization and the work force to adopt incentives to reduce the cost of production. When this mechanism is coupled with effective performance of the sales department, the organization will be in a better position to face its competitors. Simply put, when these factors are combined they become a source of competitive advantage. The third objective that this paper is expounding on can be arrived at by effective management of the two objectives earlier mentioned. This third objective is to establish better relations between the management and the overall work force. In a situation whereby there is a clear and good relationship between the top management and the work force, an enabling environment is created which propels the firm to achieve its preset goals. Studies have shown that in the absence of good relations between these two parties, the work force views itself as being separate from the management. As such, this division in spirit is often to the detriment of the organization. The top management is oblivious of the plight being experienced by the work force. Conversely, the work force does not understand the reasons behind various decisions and strategies adopted by the top management (KRO?NIG2001, p. 100). When such a situation is left unresolved it might escalate to industrial actions that negatively impact the overall performance of the organization, as well as tainting its image in the eyes of thepublic and the global business community. This gives further reasons as to why the objectives mentioned above must be treated with utmost importance if the organization is to meet its potential. When organizations endeavor to include incentive systems in their operational structure, it is paramount that the top management, which is tasked with this duty, to consider two main objectives. This can be sourced from the fact that, these objectives lead to the creation of the third objective illustrated by this paper. The first objective that organizations should focus their incentive systems on is the rewarding of efficiency. It will be in direct contradiction of literal convention for this paper to outline the advantages of rewarding efficiency of performance. This is because these advantages have already been mentioned and expounded upon earlier in the essay. However, it will not be flawed to mention one aspect of rewarding efficiency that is, or should be, of prime importance to organizations, this is the motivational aspect. Motivated employees work better and at an increased rate as compared to the non-motivated lot. When attrition levels are high within an organization, the quality and quantity of output is bound to reduce. When this occurs, the very existence of the organization is put in jeopardy. Given the significance of this aspect, organizations should focus their attention on this objective when designing he appropriate incentive system to put in place. The prime reason behind the formation of business organizations is to maximize on profits. As such, the cost of production needs to be at the minimal amount possible, so as to generate a greater profit margin. This justifies why the cost production objective, should be accorded its due focus and attention. In the absence of which, the organization will be operating at its potential effectiveness. Thus, it is in the best interest of the organization to employ incentives in their endeavor to reduce costs. In the event whereby, the top management or relevant authority focuses on these two objectives then the organization will be better placed to deal with its competition. The third objective acts as a benchmark to measure how well the incentive systems employed by the organization are working. When the relations between labor and management are of poor quality then it translates to mean that the other two objectives were not well applied in the design of these incentive systems. Conclusion Incentives are meant to motivate an individual to improve their performance. It is in this context that an organization engages in providing incentives for their employees so as to boost profits and secure the future of the organization. However, when deciding on the incentive system to adopt, there are certain objectives that a firm must concentrate its focus. These are rewarding efficiency of the work force, reducing the overall cost of production and establishing better and improved relation between the labor and management. In context to these three basic objectives, an organization must put its focus on the rewarding efficiency and reducing production costs. References GLOBERSON, S., 1985. Performance criteria and incentive systems. Amsterdam, Elsevier. KRESSLER, H., 2003. Motivate and reward performance appraisal and incentive systems for business success. Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=101426. KRO?NIG, J., 2001. Do incentive systems for knowledge management work?: an empirical study on the design and influence of incentive systems on knowledge creation and transfer in manufacturing-based industry. Bern, Peter Lang. Imberman, W.,1998.Using Incentive Plans to Boost Productivity in Manufacturing. 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