Incentive Plans

Companies’ presidents, CEOs, and managers for decades have used incentives to attract, reward, and retain employees. Dessler (2011) recognizes that most employees receive salary or hourly wage as well as other incentives (Dessler, 2011). Dessler (2011) reports a variety of incentive plans ranging from piecework plans to the earning at risk pay plans (Dessler, 2011). While there are many incentive plans that can be discussed, this paper will only highlight the advantages and disadvantages of merit pay as an incentive and profit sharing plans.Merit Pay  Dessler (2011) defines merit pay as a salary increase awarded based on performance and becomes part of the employees’ base pay salary (Dessler, 2011). Dessler (2011) asserts that merit pay has advocates who argues that rewards tied to performance can motivate performance and detractors claim that merit pay undermine teamwork and misconception of pay as a whole (Dessler, 2011). As Dessler (2011) defines merit pay with adv ocates and detractors other authors such as Longenecker and Goff (1992) uses the term performance appraisal instead of merit pay.Longenecker and Goff (1992) states that merit pay or performance appraisal is believed to be effective by managers and subordinates because it help clarify employee input about his or her job (Longenecker and Goff, 1992). At the same time, both managers and subordinates viewed merit plans as ineffective for linking pay to performance, ineffective for improving motivation and performance as well as ineffective for managers and subordinates working relationship (Longenecker and Goff, 1992).While Longenecker and Goff (1992) referred to merit pay more as performance appraisal others such as Hayes (1999) questions incentive programs altogether. In the article ‘Pros & Cons of Pay for Performance’ the author claims that no one really knows if incentive programs truly work (Hays, 1999). This article further asserts that incentive programs such as this plan create competitiveness that is not necessarily best for a company (Hays, 1999). This article proposes that rewards control behavior through seduction, that it ruins relationships, create competitiveness, that it reduces risk taking, creativity, and  innovation (Hays, 1999).Profit Sharing Plans Profit sharing plans are incentive plans where employees receive a share of a company’s annual profits (Dessler, 2011). Dessler (2011) asserts that there is ample evidence that profit sharing plans boost productivity, but the effects on profits is insignificant once one factor in costs (Dessler, 2011). In fact, the article ‘Profit-Sharing Plans Work’ the author proposes that cash profits are the best way to let employees know that they are important to the company and profit sharing is a tool that could turn the country around (Profit-Sharing Plans Work, 1988).Further, the article emphasizes how workers worry less about management receiving massive profits at the ex pense of the employees’ earnings and for management it provides a financial cushion that limits losses in economic downturns (Profit-Sharing Plans Work, 1988). All the while, this article argues that profit sharing plans where proceeds go into retirement funds instead of employees’ pockets fail to motivate and improve performance (Profit-Sharing Plans Work, 1988).In any case, this article suggests that company morale can be damaged when upper management or salaried employees are the only participants in the profit sharing plans of the company (Profit-Sharing Plans Work, 1988). Yet, Flesher (1993) article describes the profit sharing plans as the type of contribution plans that enables employees to share in accumulated profits of the company, and it is divided among the participants on a pro rata basis based on the participants and the total income of all participants in the plans (Flesher, 1993).Such plans offer the advantages of immediate tax deductions for corporatio n and no immediate tax payable by the employee (Flesher, 1993). Nevertheless, Hays (1999) questions the use of incentive programs for improving performance and asks the question: why do so many companies claim that incentive programs administered effectively or improve company performance? Hays (1999) reports in his article that personal recognition can be more motivational than money, clearly the times have changed because it is this author’s opinion that people are first motivated by monetary reward, then material reward, and then personal recognition.Conclusion Dessler (2011) describes individual incentive programs as performance based pay and team based incentives as performance pay for the team, as variable pay pays a group for its productivity (Dessler, 2011). Dessler (2011) continued by describing the various types of incentive pay plans ranging from the piecework plan to the earning at risk pay plans (Dessler, 2011). After analyzing some of the authors’ article and this author concluded that incentives are not just for the employees but for the employers as well.Pay incentives such as the merit pay plans and the profit sharing plans can be used as tools in an effective manner to increase productivity for a company, but as for motivational purposed for the employees, this could be in some ways for some employees a positive thing and for other employees a negative thing.Also, when asked the question 🙠 do profit sharing plans improve performance?), people like Hays (1999) seem to think that personal recognition can be more motivational than money. While people like Flesher (1993) seem to think that merit pay and profit sharing offers advantages of immediate tax deductions for corporation and no immediate tax payable by the employee (Flesher, 1993). Last, incentive pay has been and will always continue to be used in corporate America as a tool to attract, reward, and retain employees.