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Financial Incentives - Essay Example

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The paper "Financial Incentives" describes that Financial incentives put a value on the accomplishment made by the member of staff. It serves to encourage brilliant and capable but unenthusiastic employees thus raising their efficiency. In addition, it creates healthy competition among workers thus increasing the turnover…
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Financial Incentives
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Extract of sample "Financial Incentives"

Case Study
Financial incentives put a value on the accomplishment made by the member of staff. It serves to encourage brilliant and capable but unenthusiastic employees thus raising their efficiency. In addition, it creates healthy competition among workers thus increasing the turnover. It motivates an employee to focus on the target set. It leads to the attachment of the individual to the company, therefore, growing their level of commitment. Moreover, it links additional productivity with added pay. The other merits of financial incentives are to serve as the machinery of attracting other expert workforce and motivating workers to put forth extra effort.
However, financial incentives can sometimes be small and demoralizing if not earned. It can also have a negative impact on unenthusiastic employees, who will fail to meet the set targets. Furthermore, it causes rifts and divisions among the workers, which will in turn negatively affect the productivity, hence the overall turnover of the company. In addition, it may lead to discrimination of the under performers and ineffective evaluation of individual skills since it is based on performance. Lack of training of supervisors on ways to determine the performance, may lead to the incentives not being standard, which leads to discontent among the employees.
The downside of offering financial incentives to achieve customer satisfaction is the employees focus is short term, which does not reflect the company’s long-term goals. Moreover, it does not offer a system that measures the value of the employee’s skills. The focus on short-term goals causes the discounting of potential income of business at an elevated rate than is best for the business. The other incentives apart from financial incentives the company can offer include gift certificates, plaques, individual travel program, merchandize prizes, commissions, stocks and shares in the company and achievement recognition of the employees.
The company has been in the market extensively to develop goodwill repute for quality, q. This repute is based on the quality of service and customer care distinctiveness. The needs of the customers vary as well as their perception of the service, hence the potential repute qc, that any particular customer has in a given period is equal to average repute, q plus the heterogeneity inaccuracy, he
qc= q+he
The effort put in by some employees can be momentary, which may help in service delivery although not add to the company’s repute of quality, denoted as mc. Other employee efforts can be enduring which do not affect the service delivery but rather the customer satisfaction and the company’s repute, which is designated as ec. An ingenious customer-satisfaction motivation scheme encourages the workforce to select measures such that the distribution of effort amid the two maximizes the company’s earnings.
The company selects the cost of its service in the first period, p1, in order to capitalize on the long-term earnings. The client subsequently evaluates the company’s repute for excellence, fee and momentary effort spent by the staff while deciding on the services offered. Let s be the service quantity the company offers the client in period 1 then:
s1=q+mc-p1+he
The customer’s response depends on today’s repute and effort spent by the staff, which subsequently affects tomorrow’s repute. Therefore, we model tomorrow’s repute as:
q+ec+he2
The company sets a profit-maximizing charge, in the second phase, which is seen as the final phase with no effort to focus on the temporary verses long-standing tradeoffs. The customer’s efficacy purpose and response are comparable to the period. The client purchases the service quantities; s2=q+ec-p2+he2
The dependent variables that would change if the system works were the momentary and enduring efforts of the employees and the reputation of the company. The tradeoffs between the short term and long-term targets will be the measure of success of the system.
Works Cited
Aaronson, J.A.J. "Advantages and Disadvantages of Incentives." About Employee Benefits (2010).Web 7th December 2011
Hauser, John R, Duncan I Simester and Birger Wernerfelt. "Customer Satisfaction Incentives." Marketing Science vol 13.4 (1994): 328-334.Web 7th December 2011
"Implement Staff Incentives." Business Link Department for Business,Innovations and Skills(n.d.).Web 7th December 2011 Read More
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