strategic compensation student replies Please respond to each student utilizing 2 scholarly sources each and cite sources and required 150 word count each.

strategic compensation student replies Please respond to each student utilizing 2 scholarly sources each and cite sources and required 150 word count each.

Original question-As you consider employee roles in strategic compensation, how can companies explain employees contributions to company profits?

Student 1 Schafer, Amber

Strategic compensation can be a powerful human resources tool to drive behaviors and results for the company. Compensation strategies that emphasize group based incentives can help drive results in the direction desired for the company (Snell, 1994). Employees are quite simply what drive a company. Without employees to carry out the work, there would be no company to exist. To further that, employees which work more efficiently and effectively, therefore contribute more favorably to a company’s bottom line and profitability. Employees are more likely to work efficiently and effectively if they are happy and incentivized to do so (Lawler & Hackman, 1971). It can be difficult for companies to quantify the inputs of employees and their direct correlation to profitability, but it is very easy to see the affects of a lack of productivity. Many companies measure productivity differently, but finding an effective way to measure productivity is an effective way for companies to explain the contribution of employees to the company profits. Quantifying productivity of white collar employees has often been a difficult task for companies (Rowe, 1981). Setting group targets and metrics that show a department’s productivity is a good way for a company to explain the contributions of that particular department to the company profits and by doing so also explains the employees’ contributions. For example, explaining the reduction in late payments achieved by the accounts receivables department, or the negotiation of more favorable vendor payment terms by the purchasing department, are ways to highlight the contributions of the employees of that department that then translate into great profitability for the company.

Student 2-Ladymon, Bradley,

While considering employee roles in strategic compensation, is it important to identify the two terms of employee contributions and company profits and their relationship to each other. Strategic compensation as a technique used by organizations to help in the processes of retaining, growing, and attracting employees while also monitoring their performance and behavior to ensure it is aligned with the organization’s objectives and goals (Veldman, Klingenberg, Gaalman, & Teunter, 2014). Employee contributions ideally would be aligned properly to company profits, however in most cases, especially in our current marketplace the exact opposite occurs, and the employee contributions and company profits are not aligned well at all. A disconnect so to speak between employee contributions and company profits can lead to many issues for organizations such as distrust from the employees, lack of employee motivation, high turnover rate, and many other negative results for an organization (Bonner, J. Greenbaum, & Mayer, 2016). Obviously, for an organization to be successful they need to make profit, however in our current marketplace there is almost a devaluing of the employees, especially by large corporations who in a lot of cases treats the employee as a number and not as an individual like they should be. This type of environment referred can be a very difficult environment to work in and be a part of for most individuals and it causes these employees to be disengaged, and unmotivated due to the employee devaluation that is occurring within an organization (Purdon, 2018). For these reasons it can very difficult for organizations to explain employees’ contributions to company profits. A lot of times what happens is a spin tactic which is handed down by leadership in which the good aspects of the deal are highlighted in detail and the negative ones are vaguely mentioned. I have literally been a part of so many of these types of situations where an organization is sending out a message such as this and the message as always, been the say at least in my case and that is to spin it positively regardless of how bad it has been. It creates such a distrust throughout the organization, but this type of method is used quite frequently in our current marketplace. 4
Incentive Pay
Learning Objectives
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When you finish studying this chapter, you should be A
able to:
4-1. Explore the incentive pay approach.
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4-2. Describe the differences between incentive pay methods and traditional pay
E
methods.
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4-3. Summarize five types of individual incentive pay plans.
,
4-4. Explain two types of group incentive plans.
4-5. Discuss two types of company-wide incentive plans.
D pay programs.
4-6. Summarize considerations when designing incentive
E
A
CHAPTER WARM-UP!
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If your professor has assigned this, go to the Assignments
D section of mymanagementlab.com
to complete the Chapter Warm-Up! and see what you already know. After reading the
R and see what you’ve learned.
chapter, you’ll have a chance to take the Chapter Quiz!
A
As we will discuss momentarily, incentive pay places some portion of employee compensation
at risk. When employees, groups of employees, or entire companies fail to meet preestablished
1 or all of their compensation. Expert
performance standards (e.g., annual sales), they forfeit some
incentive pay consultants argue that a critical element of 1
successful incentive pay plans is the
provision of regular, honest communication to employees. We will explore this issue and several
2
others related to effective incentive pay design.
EXPLORING INCENTIVE PAY
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ISBN 1-323-59381-0
Incentive pay or variable pay rewards employees for partially or completely attaining a predetermined work objective. Incentive or variable pay is defined as compensation, other than base
wages or salaries that fluctuate according to employees’ attainment of some standard, such as a
preestablished formula, individual or group goals, or company earnings.1
Effective incentive pay systems are based on three assumptions:2
š Individual employees and work teams differ in how much they contribute to the company,
both in what they do as well as in how well they do it.
š The company’s overall performance depends to a large degree on the performance of individuals and groups within the company.
š To attract, retain, and motivate high performers and to be fair to all employees, a company
needs to reward employees on the basis of their relative performance.
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
4-1 Explore the
incentive pay
approach.
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Much like seniority and merit pay approaches, incentive pay augments employees’ base
pay, but incentive pay appears as a one-time payment. Employees usually receive a combination of recurring base pay and incentive pay, with base pay representing the greater portion of
core compensation. More employees are presently eligible for incentive pay than ever before,
as companies seek to control costs and motivate personnel continually to strive for exemplary
performance. Companies increasingly recognize the importance of applying incentive pay programs to various kinds of employees as well, including production workers, technical employees, and service workers.
Some companies use incentive pay extensively. Lincoln Electric Company, a manufacturer
of welding machines and motors, is renowned for its use of incentive pay plans. At Lincoln
Electric, production employees receive recurring base pay as well as incentive pay. The company
determines incentive pay awards according to five performance criteria: quality, output, dependability, cooperation, and ideas. The company has awarded incentive payments every year since
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1934, through prosperous and poor economic
times. In 2014, the average profit sharing payment
per employee was $33,984.3 Coupled A
with average base pay, total core compensation for Lincoln
employees was $82,903. Over the past 10 years, Lincoln’s profit-sharing payments averaged
T 4 Similarly, Southwest Airlines has distributed profitapproximately 40 percent of annual salary.
sharing payments to employees every E
year for the past 40 years.5 In 2014, Southwest announced
6
that it would share $228 million in profits.
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Companies generally institute incentive pay programs to control payroll costs or to motivate
, control costs by replacing annual merit or seniority inemployee productivity. Companies can
creases or fixed salaries with incentive plans that award pay raises only when the company enjoys
an offsetting rise in productivity, profits, or some other measure of business success. Well-developed
D
incentive programs base pay on performance, so employees control their own compensation levels.
E business objectives. For example, the management of
Companies can choose incentives to further
H. Lee Moffitt Cancer Center and Research
A Institute at the University of South Florida continually
strives to improve patient care as well as control costs. Moffitt’s incentives are usually tied to net
N care measures, patient satisfaction scores, and operating
income or operating surplus, quality of
D
efficiencies.
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A
CONTRASTING INCENTIVE PAY
WITH TRADITIONAL PAY
4-2 Describe the
differences between
incentive pay methods
and traditional pay
methods.
1
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
In traditional pay plans, employees receive compensation based on a fixed hourly pay rate or an1 pay programs that replace all or a portion of base pay
nual salary. Some companies use incentive
in order to control payroll expenditures2and to link pay to performance. Since 1998, there has been
a 47 percent increase in the use of incentive pay programs. Companies use incentive pay programs
3
in varying degrees for different kinds of positions.7 Nowadays, most companies use a mix of traditional and incentive pay methods. The T
mix has steadily changed. In 1998, traditional pay increases
totaled 4.2 percent of payroll while incentive
pay increases amounted to 8.0 percent. In 2014, the
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amounts were 2.9 percent and 12.7 percent, respectively.8
As we discussed in Chapter 3, employees under traditional pay structures earn raises according to their length of service in the organization or to supervisors’ subjective appraisals of
employees’ job performance. Again, both merit pay raises and seniority pay raises are permanent
increases to base pay. Annual merit pay increase amounts usually total no more than a small percentage of base pay (approximately 3 percent), but the dollar impact represents a significant cost
to employers over time. Table 4-1 shows the contrast in rate of compensation increase between a
traditional merit compensation plan and an incentive plan.
Companies use incentive pay to reward individual employees, teams of employees, or whole
companies based on their performance. Incentive pay plans are not limited solely to production
or nonsupervisory workers. Many incentive plans apply to such categories of employees as sales
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TABLE 4-1 Permanent Annual Merit Increases versus Incentive Awards: A Comparison
(At the end of 2015, John Smith earned an annual salary of $35,000.)
Cost of Increase
(Total Current Salary—2015
Annual Salary equals $35,000)
Total Salary under
N%
Increase
‘& S€X
Permanent Merit
&%” SVX
Incentive
~% SVX
Permanent Merit Increase
(Percent Increase × Previous
N% &&’% %%/X + Previous
&&’% %%/ SVX
2016
2017
2018
2019
2020
3
5
4
7
6
1,050
2,853
4,367
7,122
9,649
1,050
1,750
1,400
2,450
2,100
36,050
37,853
39,367
42,122
44,649
Incentive Award
(Percent Increase × 2015
%%/X + K%” %/
SVJ[D“`X SVX
36,050
36,750
36,400
37,450
37,100
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A
T
professionals, managers, and executives. Management typically
E relies on business objectives to
determine incentive pay levels such as company profits and sales growth. Management then comS to managers. Although merit pay
municates these planned incentive levels and performance goals
performance standards aim to be measurable and objective, incentive
levels tend to be based on even
,
more objective criteria, such as quantity of items an employee produces per production period or
market indicators of a company’s performance (e.g., an increase in market share for the fiscal year).
D in advance that correspond to obMoreover, supervisors communicate the incentive award amounts
jective performance levels. On the other hand, supervisors generally
do not communicate the merit
E
award amounts until after they offer subjective assessments of employees’ performance.
Incentive pay plans can be broadly classified into threeAcategories:
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š Individual incentive plans. These plans reward employees whose work is performed
Dtypically for their production
independently. Some companies have piecework plans,
employees. Under piecework plans, an employee’s compensation
depends on the number
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of units she or he produces over a given period.
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š Group incentive plans. These plans promote supportive, collaborative behavior among
employees. Group incentives work well in manufacturing and service delivery environments that rely on interdependent teams. In gain sharing
1 programs, group improvements in
productivity, cost savings, or product quality are shared by employees within the group.
1 compensation to a company’s
š Company-wide incentive plans. These plans tie employee
performance over a short time frame, usually from a one-month
period to a five-year period.
2
Table 4-2 lists common performance measures used in 3
individual, group, and company-wide
incentive plans9.
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INDIVIDUAL INCENTIVES
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Individual incentive pay plans are most appropriate under three conditions. First, employees’
performance can be measured objectively. Examples of objective performance measures include:
š Number of units produced—an automobile parts production worker’s completion of a turn
signal lighting assembly
š Sales amount—a Mary Kay Cosmetics sales professional’s monthly sales revenue
š Reduction in error rate—a word processor’s reduction in typing errors
Second, individual incentive plans are appropriate when employees have sufficient control
over work outcomes. Factors such as frequent equipment breakdowns and delays in receipt
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
4-3 Summarize five
types of individual
incentive pay plans.
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TABLE 4-2 Typical Performance Measures for Individual,
Group, and Company-wide Incentive Plans
Individual Incentive Plans
Quantity of work output
Quality of work output
Monthly sales
Work safety record
Work attendance
Group Incentive Plans
Customer satisfaction
Labor cost savings (through gain sharing plans)
Materials cost savings
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Services cost savings (e.g., utilities)
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Company-wide Incentive Plans
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Operational Measures:
E
Customer satisfaction
Operational efficiency S
Service/quality
,
Safety/occupational injury
Financial Measures:
D
Revenue
E share
Earnings per company stock
Operating income
A
Revenue growth
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D
R
A
employees’ ability
Note: Measures such as safety records and customer satisfaction can be measured on
an individual, group, or company-wide basis according to a company’s objectives.
of raw materials limit
to control their performance levels. Employees are
not likely to be diligent when they encounter interference: Chances are good that employees
who previously experienced interference will expect to encounter interference in the future.
1 because companies will find it difficult to motivate
Employees’ resistance threatens profits
people to work hard when problem factors
1 are not present.
Third, individual incentive plans are
2 appropriate when they do not create a level of unhealthy
competition among workers that ultimately leads to poor quality. For example, a company may
3 the number of incentive awards to only 10 percent of
create unhealthy competition when it limits
the employees who have demonstratedTthe highest levels of performance. If the company judges
performance according to volume, then employees may sacrifice quality as they compete against
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each other to outmatch quantity. In addition, under an incentive plan that rewards quantity of
output, those employees who meet or exceed the highest standard established by their employer
may be subject to intimidation by workers whose work falls below the standard.10 Unions may
use these intimidation tactics to prevent plan standards from being raised.
Defining Individual Incentives
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
ISBN 1-323-59381-0
Individual incentive plans reward employees for meeting such work-related performance standards as quality, productivity, customer satisfaction, safety, or attendance. Any one of these
standards by itself or in combination may be used. A company ultimately should employ the
standards that represent work that an employee actually performs. For instance, take the case
of telemarketers. Customer satisfaction and sales volume measures indicate telemarketers’
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performance. Tardiness would not be as relevant unless absenteeism was a general management problem.
Managers should also choose factors that are within the individual employee’s control
when they create individual performance standards. Furthermore, employees must know about
standards and potential awards before the performance period starts. When designed and implemented well, individual incentive plans reward employees based on results for which they are
directly responsible. The end result should be that excellent performers receive higher incentive
awards than poor performers.
Types of Individual Incentive Plans
There are five common types of individual incentive plans:
š
š
š
š
š
Piecework plans
Management incentive plans
Behavioral encouragement plans
Referral plans
Spot bonuses
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A
T
PIECEWORK PLANS Companies generally use one of two E
piecework plans.11 The first, which
is typically found in manufacturing settings, rewards employees
based on their individual
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hourly production against an objective output standard and are determined by the pace at which
,
manufacturing equipment operates. For each hour, workers receive piecework incentives for
every item produced over the designated production standard. Workers also receive a guaranteed
hourly pay rate regardless of whether they meet the designated
D production standard. Table 4-3
illustrates the calculation of a piecework incentive.
E a unit is relatively short, usually
Companies use piecework plans when the time to produce
less than 15 minutes, and the cycle repeats continuously. Piecework
plans are usually found in
A
such manufacturing industries as textiles and apparel.
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Quality is also an important consideration. Companies do not reward employees for producD attempt to minimize defect rates
ing defective products. In the apparel industry, manufacturers
because they cannot sell defective clothing for the same price
R as nondefective clothing. Selling
defective clothing at a lower price reduces company profits.
A
The second type of piecework incentive plan establishes individual performance standards that
include both objective and subjective criteria. Units produced represent an objective standard. Overall
work quality is a subjective criterion that is based on supervisors’
1 interpretations and judgments. For
example, supervisors may judge customer service representatives’ performance to be higher when
1
2
TABLE 4-3 Calculation of a Piecework Award for a Garment Worker
3
Piecework standard: 15 stitched garments per hour
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Hourly base pay rate awarded to employees when the standard is not met: $4.50 per hour
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That is, workers receive $4.50 per hour worked regardless of whether they meet the piecework standard
ISBN 1-323-59381-0
of 15 stitched garments per hour.
Piecework incentive award: $0.75 per garment stitched per hour above the piecework standard
Guaranteed
Hourly
K%” %/ SVX
First hour
Second hour
4.50
4.50
Piecework Award
S# 2 %&”
above the Piecework
%&% × ~@ && ~%X
10 garments × $0.75/garment = $7.50
Fewer than 15 stitched garments, thus
piecework award equals $0
Total Hourly
%&&)” SVX
12.00
4.50
Strategic Compensation: A Human Resource Management Approach, Ninth Edition, by Joseph J. Martocchio. Published by Pearson.
Copyright © 2017 by Pearson Education, Inc.
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sales professionals emphasize the benefits of purchasing extended product warranties than when
sales professionals merely mention the availability and price of extended product warranties.
Economists argue that there are two advantages to companies of using piecework plans in
manufacturing settings known as the incentive effect and sorting effect.12 The incentive effect
refers to a worker’s willingness to work diligently to produce more quality output than simply
attending work without putting in the effort. To put this simply, employees earn much less under
the piecework system than they would under a standard hourly pay system. Whereas employees
are certainly expected to perform without an incentive (piece rate), research shows that incentives
often are associated with higher employee performance.
The sorting effect addresses an employee’s choice to stay versus leave his or her employer
for another job, presumably one without an incentive pay contingency. Specifically, a hardworking, highly skilled employee is likely to choose to remain employed under an incentive system
because both diligence and skill presumably contribute to higher quantity and quality of output—
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thus, higher pay.
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MANAGEMENT INCENTIVE PLANS Management
incentive plans award bonuses to managers
when they meet or exceed objectives
T based on sales, profit, production, or other measures
for their division, department, or unit. Management incentive plans differ from piecework
E
plans in that piecework plans base rewards on the attainment of one specific objective,
S require multiple complex objectives. For example,
and management incentive plans often
management incentive plans reward ,managers for increasing market share or reducing their
budgets without compromising the quality and quantity of output. The best-known management
incentive plan is management by objectives (MBO).13 In Chapter 3, MBO was presented as an
D technique for merit pay systems. When MBO is used
outcome-oriented performance appraisal
as part of merit pay systems, superiors
Emake subjective assessments of managers’ performance,
and they use these assessments to determine permanent merit pay increases. When used as
part of incentive programs, superiorsA
communicate the amount of incentive pay managers will
receive based on the attainment of specific
N goals.
D Under behavioral encouragement plans, employees
BEHAVIORAL ENCOURAGEMENT PLANS
receive payments for specific behavioral
R accomplishments (e.g., good attendance or safety
records). For example, companies usually award monetary bonuses to employees who have
A
exemplary attendance records for a specified period. When behavioral encouragement plans
are applied to safety records, workers earn awards for lower personal injury or accident rates
associated with the improper use of
1 heavy equipment or hazardous chemicals. Table 4-4
contains an illustration of a sample behavioral encouragement plan that rewards employees for
1
2
TABLE 4-4 A Sample Behavioral Encouragement Plan that Rewards

3
T
At the end of each 3-month period, employees with exemplary attendance records will receive
monetary incentive awards according to S
the following schedule…
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