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Incentive Plans as Links to Organization Objectives

  Over the years, organizations have implemented incentive plans for a variety of reasons: high labor costs, competitive product markets, slow technological advances, and high potential for production bottlenecks. While these reasons are still cited, contemporary arguments for incentive plans focus on pay-for-performance and link compensation rewards to organization goals. By meshing compensation and organizational objectives, managers believe that employees will assume “ownership” of their jobs, thereby improving their effort and overall job performance. Incentives are designed to encourage employees to put out more effort to complete their job tasks-effort they might not be motivated to expend under hourly and /or seniority –based compensation systems. Financial incentives are therefore offered to improve or maintain high levels of productivity and quality.

  Do incentive plans work? Various studies have demonstrated a measurable relationship between incentive plans and improved organizational performance. In a survey of organizations with more than 500 employees, conducted by the New York Stock Exchange, 70 percent of organizations with gainsharing programs stated those programs improved productivity. In the area of manufacturing productivity will often improve by as much as 20 percent after the adoption of incentive plans. Improvements, however, are not limited to goods-producing industries. Service organizations, not-for –profit, and government agencies also show productivity gains when incentives are linked to organizational goals.

  However, incentive plans have not always led to organizational improvement. Firstly, incentive plans sometimes fail to satisfy employee needs. Second, management may have failed to satisfy employee needs. Second, management may have failed to give adequate attention to the design and implementation of the plan. Furthermore, the success of an incentive plan will depend on the environment that exists within an organization. A plan is more likely to work in an organization where morale is high, employees believe they are being treated fairly, and there is harmony between employees and management.
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