1. Introduction One of the fundamental purposes of management accounting and control research is to motivate employees to operate for the firm’s interest. It is clear that incentives affect overall performance, and thus, managers and accountants by providing monetary incentives and compensation systems aim to improve their employees’ performance. However, the inequity is produced by the design of compensation contracts and by managers’ performance evaluation biases, is perceived to be one of the main problems of firm’s prosperity. A large theoretical literature, based on agency theory, has emphasized how firms design compensation contracts make employees to do their best for the firm. Therefore, firms include many different mechanisms (i.e. piece rates, options, bonuses and stocks, budget targets) in their compensation contracts to align interests between the employees and their managers. However, objective measures are not perfect and using only these is unlikely to be the most effective way to motivate employees (Feltham & Xie 1994; Hemmer 1996). Financial measures provoke a reallocation of activities toward those that are directly compensated and away from the uncompensated activities, known as multitasking problem (Holmstrom & Milgrom, 1990, Baker 1992). They have been criticized for promoting over-emphasis on short-turn financial results, and thus, they sacrifice long-turn (Ittner et al., 1997, 2003). Moreover, financial measures of performance tend to be noisy
In the case presented both AFLAC and L.L. Bean had their own distinctive ways of utilizing their products in order to enhance the total compensation for its employees. The factor that has deterred more employees away from their current employer is that of benefit packages, and reward systems. As stated by () “compensation affects a person economically, sociologically, and psychologically. For this reason, mishandling compensation issues is likely to have a strong negative impact on employees and, ultimately, on the firm’s performance” (p.313). Many felt just a bump in pay wasn’t enough to substantiate their hard work or the efforts that the performance efforts provided to their organization. As stated by () “the right total rewards system a blend of monetary and non-monetary
Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).
carefully planned out and considered, the total closure or failure of the organization could be at hand in the near future. In our modern age, employers know that salary is not the only factor that should be considered and that salary alone will not lead to better or more highly profitable workers alone. This is why compensation planning is important and why pay should have some connection between performance and compensation. This is why the human resources department should consider many monetary and non-monetary factors when considering how to properly compensate and motivate employees (Dessler, 2013).
For the most part, a company’s compensation policy aims to ensure that employees are compensated in a fair and competitive manner. However, the compensation objectives employed by different companies can vary widely. This is especially true when taking into account wages vs. skills, competitor salaries, pay-for-performance, and other elements of compensation, like overtime, incentives, etc. (Snell, Morris, & Bohlander, 2015).
A Performance-Based Pay system is an increasingly popular compensation method used by organizations to increase productivity. A goal for all companies is to try and remain competitive and control costs, this is a reason for performance-based pay systems becoming more popular. This type of system attempts to link compensation to performance. (Gena Richter, 2002) These systems are directly tied to organization or individual performance and are most effective when based on objective measures of quantity or quality of performance. If we wish to have a direct impact on work motivation, it must be linked directly to the performance of desired behaviors. In order for to put this type of system into place, performance evaluations must be conducted regularly , as well as training and development for those with performance that isn't quite up to par. These additional resources will be necessary for our organization if we implement a performance based pay system. (William B. Bernathy, Ph. D., 2004)
With the constant change in today’s business world, to have a competitive advantage makes it difficult for employers to attract and retain the most talented employees. Identifying the company’s compensation strategy ensures the organization offers the right pay and manages the pay increases to retain top talents. When we hear the word compensation we think about compensating an employee for their work performed, but there
The intent of this assignment is to develop a user-friendly tool that may be applied in the workplace to document Compensation processes and to guide a practitioner in completing the critical steps of each process. The purpose of this assignment is to assist in describing each component of a compensation management system, to develop a practitioner's guide for several of the key compensation management tasks covered in HR511 Total Rewards.
A well-articulated compensation philosophy drives organizational success by aligning pay and other rewards with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company's culture and values (Kaplan, 2006, p.32). Recognizing and rewarding achievement is the cornerstone of the company A’s compensation philosophy. The mission of the company is to attract, select, place and promote all individuals based on their qualifications. The company believes that performance-based compensation helps attract, develop and retain talented professionals. In addition to base pay which based upon local market conditions and targeted to be above market, the company provides the following types of potential compensation to reward performance:
There are five major components of job satisfaction, one being monetary benefits (Ghillyer 2010). According to Ghillyer (2012) an employee’s behavior towards their pay may affect their work performance. The issue that arises with employee motivation is that management is unable to satisfy all (Ghillyer 2010). This becomes an even larger problem when employees being joining unions, resigning and being frequently absent (Ghillyer 2010).
This paper will examine setting the stage for strategic compensation and bases for pay. There are three main goals of compensation departments: internal consistency, market competitiveness, and recognition of individual contributions. Internally consistent compensation systems define the relative value of each job among all jobs within a company. (Martocchio, pg. 22, 2011) With this system companies want employees to be paid more based on their qualifications and responsibilities. They believe someone with less experience should be paid differently. To determine such evaluation companies use job analysis in order to provide job descriptions. The job evaluation is to determine pay according to a particular position. Market-competitive
Pay for performance systems have further been proven to have two advantages for organizations: attracting more high-quality employees and motivating employees to exert more effort at their jobs. (Gordon, Kaswin) This paper will show the positive benefits of performance pay as
“Year after year, as executive pay continues its inexorable climb, it's amusing to watch corporate directors try to justify the piles of shareholder money they throw at the hired help (Morgenson 1)”. There are many employees that go the extra mile and produce more for their company, but they often never receive anything extra in return. Due to this, they are less motivated to go the extra mile in the future. In contrast, incentive pay is beneficial to an organization’s overall production efficiency and effectiveness.
* Since management compensation is tied to firm performance, managers are incentivized to keep costs under control and maintain profitability. However, it is important to balance cost-controls with
Keeping employees motivated in addition to creating incentives and/or additional ways for employees to receive more compensation will create better performance overall within an organization. Contrary if company B gives their employees incentives to perform, without any motivational tactics they probably will not have as many top performances as company A, in addition the company may only seek short term rewards verses have long term success. Lack of motivation for employees within an organization, can cause long term damage for the company’s success. Different things motivate everyone; therefore there should be a system in place to keep employees motivated for the long term success of the company. In the MBM textbook under the concept of incentives, compensation, and motivation, there are a couple of different views of how it should be applied within an organization. We will discuss The Social Role of Profit, Personal Profit and Losses, and the way Market-Based Management view how incentives, compensation, and motivation should be applied and the things that effectively drive employees’ actions while at work.
An incentive pay program can reward employees who continue to produce superior work or encourage employees who already produce good work to best. Sometimes, use an incentive system when employees are lack of enthusiasm of getting down to work and improving things. If everyone in the same job classification gets the same pay, there is no real incentive to do an outstanding job (French, 1990). Various incentive plans used to motivate all employees such as production staff, sales staff, administrative staff and managerial and professional staff on an individual basis. To be improved employee work performance, the incentive pay programs need to be fairly matched with the employees’ expectation. Properly designed and maintained incentive pay program has the potential to increase employees’ productivity and work performance.