A Business Incentive Plan, Research Paper Example

A corporation is to provide benefits of products in order to have high volume of sales, and benefits for productive employees for making it possible, and benefits for observant investors who faithfully to fulfill the needs by pursuing prospects on why is that an organization is a worth of an investment.  Moreover, an understanding of the foundation of business processes is what employees are supposed to acknowledge prior receiving incentives (David, 2007).

Business Objectives

Formulating a mission and vision statements for your business is the foremost important design to establish business objectives. One of the objectives is the employees’ incentive benefits. In order to acknowledge what incentive plans are appropriate for employees to value their productivity and their self-esteem. When implementating an incentive plan, CEO and Board of Directors provided an assessment on strengths, weakness, opportunities and threats of products/services activities. Including, the guidelines for employees to adhere business objectives, and commitments and cooperation, and opportunities for growth, and measurements and differenation (David, 2007).  In which, these business components are of the essentials in all aspects of an organization. Most companies utilizes two popular cost-effective incentive programs –Individual incentive plans and Companywide incentive plans (Ebert, et .al, 2005)

Vision statements should instilled goals to all members of organization and scrutinized on the tasks to reach the goals, and take into account of stakeholders’ commitments and cooperation on improvise company’s financial portfolio. For example,  A “high-quality” salespeople is efficient in selling over 100 products within a day, managers are more likely to obtain greater results for teaching salespeople on marketing skills than of those managers bequeathing the same management effort for not helping the fewer “terrific” salespeople to effective. Thus, incentives are given with an additional quality that is not included in the guidelines. In which, this strategies are considered as an objective of mission and vision statements, and one of incentive attributes.  Thus, it is wise to evaluate various management/employees situations and apply the Pareto Principle appropriately – and wisely (Principle Management Associates, 2005).

Pareto Principle

The Pareto principle is used in prioritizing objectives in the orderly manner during the implementation processes.  Pareto principal is known as 20-80 rules, the law of organizational behavior results, the principle of internal factors, in which, states that for many phenomena 80% of consequences stem from 20% of the causes. An internal organizational behavior rule-of-thumb is simple, but it is also commonly unexplainable for some areas of business. For instance, creating a guideline for employees to earn incentives by contributing their economic attributes on time, stewardmanship, teamwork effort, and ensured that product has a good quality assurance as their primary responsibilities as the part of objectives. Another perspective of 20-80 Pareto principal is a setting goal of 20% of work productivity effort, along with the 80% of given product performance. Lastly, maintaining the minimum of 20% of undefective products and goods as a baseline, and evaluate the consumer purchase parities outcome of 80% of satisfied/loyal consumers (Pareto Principle 80-20 Complete Information, 1995).  All of the objectives can be used for evaluating incentives.

Hence, it supporters claim that since 20% of employees are likely to produce 80% of production. In which, results that time and money are accounted for. A part of managers’ incentive is to be critical with production and processes with good time management. When the productions are above the quota – they are considered so-called “superstars”.  Furthermore, an implementation plans designing the Pareto’s Principle philosophy to the mission/ vision guidelines is flawed for many organizations. Because of its nature of complexity on what is applicable and what does not apply to the incentive program(s). This principal is considered useful. Otherwise, it would not be effective in all areas of operations.

Companywide Incentive Programs

Robert J. Ebert and Ricky W. Griffin (2005) recommended variety of incentive programs for employers to consider the options as long the plans are effective in all areas of operations. A companywide incentive program that is consists of three different incentive plans, which are: Profit-sharing, Gainsharing plans, and Pay-for-Knowledge plans.  All of these plans are based on the employment levels in combination with training, education, and experience.

Profit-sharing. Profit-sharing and Pay-for-Knowledge plans are for all employees, whereas the Gainsharing plans are for executive positions. Profit-sharing incentives are purported for distributing equivalent bonus pay to all employees when the company’s financial health is above the certain P/E ratio level of financial portfolio.

Gainsharing plan. This plan is an optional benefit for employees. A stock-option plan that divides the dividends to all executive employees or operational cost-savings through greater work efficiency.

Pay for Knowledge plan. Some companies preferred that Pay-for-Knowledge incentive plan to be designed for employees to learn new task skills other than their initial job description duties and cover other employees’ job tasks as needed.  an incentive benefit.

Variable pay. Similar to the Gainsharing plan, but, this plan is designed for middle managers, for production outputs exceeding the costs of bonuses. Managers must be on exempted salary rate that does not include the compensation time, overtime pay, and or added merit based pay. This incentive benefit can be transferred to retirement benefits by the time a middle-level manager retired. And, then the company has to pay out retirement benefits.

Individual Incentive Plan

Under the Individual Incentive program, there are two forms of special payments for employees earning their highest performance potential and demonstrating an ability to influence other employees to motivate to earn their performance incentive benefits.

Salary Bonus. In the private-for-profit sectors, service employees receive sales bonuses—the number of goods sold above the baseline in a year. A bonus earned that is not succeeding is described as the numbers of goods sold are less than the minimum sales mark baseline (e.g., 10% of unsatisfied consumers). A guideline on salary bonus system should be brief with less than 100 words without any discretion (Ebert, et .al, 2005)

Merit salary system. A system designed for manufacturing, factory, and Not-for-Profit sectors employees earning through the performance rank levels. Some companies would design an incentive plan for employees in service for 1-5 years, 5-10 years, and 10-20 years. The first twenty years of services, employees receive a 1% to 5% raise, including the scores of 100% to 90% performance scorecard evaluation results. Any exception to the incentive rules, according to the guidelines as indicated, would take in account considerably. Such as, the objective of Social responsibility— gains more stakeholders — influences the power of products/services that benefits the community and organization as whole. Thus, those employees gain its recognization for its accomplishment and they are entitled to incentive benefits as a part of companywide incentive program. Hence, it depends on the all aspects of organization’s health including internal/external exposure during the year of services rendered (Ebert, et .al, 2005).

Conclusion

In the reference of the 20-80 rules, an organization shall always review and reevaluate strategy objectives that is imposed by internal /external environment or environmental factors that may affect one or two incentive objectives. The measurements of objectives are best described as a guideline for employees to perform their best potential (e.g., the survival, growth, and profitability) based on performance.

References

David, F. (2007) The Nature of Strategic Management: Strategic Management Concepts and Cases (11^th Ed.) Upper Saddle River, NJ: Pearson Prentice Hall

Ebert, R. J., & Griffin, R.W. (2005) Incentive Programs. Business Essentials (5^th ed.) Pp.236-237. Upper Saddle River, NJ: Pearson Prentice Hall

Pareto Principle 80-20 Complete Information (n.d.) Retrieved June, 26, 2011 from: http://www.gassner.co.il/pareto/

Pinnacle Management Associates (2005) Pareto Principle: How the 80/20 Rule Helps Us be More Effective. Retrieved June, 26, 2011 from: http://www.pinnicle.com/Articles/Pareto_Principle/pareto_principle.html