21 September 2011
The Complexity of Incentive Pay
In today’s complex global economy, competition is a fierce as ever before. Various factors have led companies of all shapes and sizes to take advantage of their resources in order to maximize profits in more ways than they have in the past. In America, the current recession has put great pressure on companies and government entities to cut costs, and maximize returns on their investments as much as possible. The increased globalization of the workforces used in many fields, coupled with the rapid development of some countries like China and India, has also forced companies to try to get the absolute most out of their employees. In an effort to increase employee productivity, many companies have moved to incentive pay, as opposed to more traditional methods like salaries an hourly wages. Incentive pay is a wage system that rewards a worker for productivity above an established standard. Examining the incentive pay theory leads to complex and intriguing results. To best analyze this compensation method, one must first look at it broadly in opposition to more traditional methods. Secondly, the merits of incentive pay must be measured when it is implemented based on company-wide performance, as opposed to the success of divisions or individuals. Lastly, it is beneficial to gain an understanding of the various incentive pay structures different companies have for their employees.
There are advantages and disadvantages to incentive pay systems as opposed to basic salary or hourly wages. Proponents of incentive pay believe employees who stand to gain something above their standard compensation if they are able to achieve certain standards will therefore work harder to reach those goals and be more invested in the quality of their work. In turn, the company as a whole will benefit from their employees’ increased performance. This is the quintessential reasoning for...