Evaluate the incentive package for plant-level employees consisting of the attendance bonus, the quality incentive plan, the profit sharing plan, and the individual incentive plans; What problems do these plans solve? What problems do they create? Attendance Bonus: An attendance bonus which is 60 cents per hour pay incentive was earned for each pay period during which an employee was never more than 2 minutes late for work.
It motivates employees to be punctual by provides cash rewards. It measures every employee equally, as the same plan is used for everyone at the plant level. It also increases Return on Management (ROM) since the plan lacks of need for disciplinary actions, therefore increases management’s awareness on the other relevant factors, productivity will also be increased as more work would be done by increasing efficiency Finally, part or all of the cost of the plan would be paid by the increase in the productivity.
However, this plan will only motivate employees to show up to work on time, but won’t motivate employees to work effectively, productivity won’t be increased. The attendance bonus may create the problem of hurting valuable employees for legitimate work absences. This plan may add amount of stress to rush to work and the possibility of collusion between employees (that is one employee will punch in for his fellow co-worker if he is late for work).
Quality Incentive Plan: A quality incentive plan including many variables for instance meeting promised shipment dates and reducing customer complaints that target equaled $100 per employee per month to highlight the importance of quality in the company culture. Performance often measured a team effort, thus employees are working together to increase organizations profitability by finding new ways to work proficiently and increases quality of the work process.
The quality of work is not compromised with speed, this plan won’t hurt quality over the quantity of work done, thus plan increases both effectiveness and efficiency. In addition, it will motivate employees to disclose system concerns that may hinder customer satisfaction therefore increases better relationships with employees. Finally, continued improvement is rewarded and working in teams encourages innovative, new ideas which in turn could increase quality.
However, this plan does not motivate the outstanding employees to increase their productivity because it focuses on employees who are performing below standards, potential conflicts between employees based on different perspectives may occur. Most importantly, it does not reward on an output basis. In addition, this plan may impair quantity for the increase in the quality of work done and cutoff issues such as deciding which period to allocate a complaint when a shipment is made in one period but the complaint is made in subsequent periods. Neither this plan consider the seasonality of the company.
The number of complaints can be a very subjective measure because it focuses solely on customer complaints ignores all the other dimensions of customer satisfaction. Payout ranges have the tendency to equalize unequal results. This plan could sacrifice quantity for quality or visa versa. The separate cheque disbursements could be a de-motivating measure for employees that feel they performed above standards but a subjective measure refutes this claim.
Profit Sharing Plan: equals in size to 15% of pretax profits after a deduction equal to 10% of the beginning – of -year net worth allocated to the business unit. At end of each year the profit -sharing pool was allocated to employees, pro rate, based on their individual share of total wages and salaries in the business unit. Plan aligns company’s strategic goal of increasing profits and motivates employees to pursue that common goal since all employees have an impact on the profits of the company. This plan encourages employees to discuss new initiatives and improvements more proactively with management. It encourages teamwork which encourages both effectiveness and efficiency by employees.
But this plan fails to acknowledge individual performance, since the reward is based on the collective performance of all the employees; therefore this plan ignores the performance of the unproductive employees. If the company does not earn profits due to the activities beyond the control of employees, the employees do not earn anything. Reward is based on the financial results, not the performance results.
Percentage is fixed at the beginning of the period, thus it does not give the employees any incentive to increase sales beyond certain levels. Hostility may be created between employees and the management on different perspectives in running the daily operations. Allocating the bonus based on salary and wages eliminates equality of effort in the division. For example, an employee at the lower end of the pay scale would receive a smaller bonus than those above, even if a major decision that increased profits was his alone.
Individual Incentive Plans: usually contained incentives ranging from 10 to 40 percent of base pay. It is designed into three main components, the order accuracy, order acknowledgement and turnaround, and sales growth. The higher the results for each category, the higher the bonus payout. The individual incentive plan is used chiefly for sales and supervisory employees. Easy to track individual performance of sales people. Plan encourages sales growth and profitability of the company.
Plan values customers by promoting faster order turnaround. Plan records performance of sales and supervisory employees. Plan promotes quality over the quantity of the sales meetings. Helps the company evaluate, whether there is a need to re-train the employees. Assists the company in retaining the profitable employees and compensating them accordingly. Helps the company to decide whether there is a need for disciplinary action. Can be tailored to compensate exceptional performers. Emphasizes the quality of a sales meeting as opposed to the quantity of sales meetings.