Motivation by Variable Pay Plans - Coursework Example

Motivation by Variable Pay Plans Course Name and Code Institution Name Faculty Name Insert Your Name Insert Your Number Instructor’s Name 14th July 2009 Abstract Variable pay may be defined as the compensation that is received by employees on top of their organisation basic pay. Its determination is calculated based on certain employee centric factors. The general criterion that the employers use is ensuring that the employee performs better so that they can earn more compensation. Thus, the variable pay program is aligned with organisation strategic goals. Hence, it is a result oriented compensation system in which it improves on organisational productivity. Moreover, the use of variable pay program contributes towards motivation and attracting of employees. The aim of this paper is to analyse the influence of variable pay programs in terms of motivation to the employees and staff. Outline 1.0 Introduction………………………………………………………………4 2.0 Background on Motivation……………………………………………….4 3.0 Variable Pay as a motivational tool………………………………………5 4.0 Variable Pay as an attraction tool………………………………………...7 5.0 Incentive Pay plans e.g. group or individual incentive……..……………8 6.0 Other Variable Pay Considerations……………………………………...10 7.0 Unspoken Assumptions………………………………………………….11 8.0 Benefits and weaknesses of Variable Pay as a Motivation……………...12 9.0 Conclusion……………………………………………….………………13 10.0 Work Cited……………………………………………………………..15 1.0 Introduction In many organisations, the human resource professionals are constantly looking for means, ways to ensure that staff and employees are contributes positively towards the success of the organisation, and this can be achieved through ensuring that the right staffs play their relevant roles and accomplishing task correctly. Nevertheless, the human resource department continuously evaluates potential and additions towards the reward toolkits for their staff and employees. Thus, when the reward is utilised effectively – it can be a compensation plan, benefit program or other strategies of recognising the contribution of the staff – it improves or supports the achievement and contribution of the employee towards achieving the objectives of the organisation. One of the versatile tools that can be used by an organisation in developing their compensation plan is the use of variable pay. The use of variable pay is not a new thing in human resource field, but it has continuously be used by the executive ranks but its benefit currently, is increasing and many human resource departments are embracing this toolkit. Therefore, the aim of this paper is to analyse the impact of variable pay in motivating employees and staff. 2.0 Background on Motivation Motivation is a term that has links with the Latin word movere, which means to move. Thus, motivation can be viewed as an internal desire that activates behaviour and forms a basis of direction derivation. Therefore, motivational theories objective is to determine and understand the process that describes reasons and means in the way that human behaviour is activated and directed to accomplish certain goals. This field of motivational theories is an important component within organisational behaviour, which plays an instrumental task within human resource management. Usually, there are two main motivational theories, which are content and process theories (Berger, 80). Content theory most deals with internal factors that empowers and result in directing human behaviour. Paramount theories within the content theory are the Maslow’s Hierarchy theory, Alderfer’s ERG theory, Herzeberg’s motivator-hygiene theory and the Learned Needs theory. The most common theory within this category is the Maslow theory in that there are five levels of needs that contribute towards motivating an individual. On the other hand, the process theory allows understanding of thought processes that either governs or influences the behaviour. Some of the theories that fall in this category are the Vroom’s theory, goal setting theory, reinforcement theory and Adam’s equity theory (Corby and Geoff 45). The most common theory is the goal setting theory in that it is developed in the belief that an individual requires achievement of a given end state – mostly reward. Some features of this theory are specificity, proximity and difficulty. Other features or theories complement these theories. The other features of motivation are the intrinsic and extrinsic. Intrinsic motivation originates from rewards that are inherent with a given task. Thus, it is a motivation that is achieved without any reward but the activity itself e.g. enjoyment of a puzzle. Extrinsic motivation comes from outside of the individual and is usually associated with rewards such as monetary. Moreover, threats and coercion of punishment may be termed as extrinsic motivation. 3.0 Variable Pay as a motivational tool The use of variable pay is an important tool that should be viewed from two perspectives. The use of variable pay opportunities should provide and avenue in which it will attract new employees and after the employees have been employed, the variable tool should have a motivational impact to the new employees when they become active. Additionally, the fundamentals and rules that the variable pay is developed on should be able to motivate an employee; for example, the requirements that the employee should accomplish so that the employee can receive the rewards should be realistic and achievable (Berger, 90). In most instances, when the staff and employees view that the performance expectations as just or reasonable, and at the same time that the reward that they will receive through their efforts is perceived as material, they will be determined and strive towards achieving these additional rewards. Thus, a question that may be asked is what is considered as a material. Generally, a value that that is approximately equal to a month’s pay may be viewed as a sufficient and meaningful to the employee, and poses a greater chance that amount will attract the attention of the employee. This is usually taken has the lowest targeted award level for staff and employees who are entitled for the variable pay (Corby and Geoff 48). Additionally, at an average of 3-4% of the base pay, human resources and managers usually struggle to find ways to ensure for competitiveness in their pay programs and at the same time provide meaningful rewards to the staff and employees for the desired outcomes using annual base pay increases. At some times, the use of traditional annual pay increases seems too far off and usually possesses minimal chances to effectively motivate the employees. The most important thing for compensation professionals is controlled by the idea that the behaviours and results that are required are achieved using the reward. Therefore, it is crucial that formulation and designing of the variable pay program should reinforce importance of the organisation and able to motivate the right things. Proper formulation of the variable pay program can direct the employees and staff on organisation drivers that are within their control. Generally, the effectiveness of the variable plan program is dictated on its formulation and communication to the employees. 4.0 Variable Pay as an attraction tool Variable pay program is important even before an employee joins the organisation especially if the variable pay program is part of well developed compensation strategy that is derived from a broader human-capital approach and which outlines the type of employee that the organisation deems necessary to fulfil some business objectives and goals. In most instances, the talent profile is usually defined by the organisation’s entire population or for a specific section of the workforce. In most cases the organisation includes the variable pay because the management or leadership have concluded that the employees fit a given profile and there are chances that the employees will be motivated and they will employee full potential in ensuring that the achieve all rewards that are available to them. Hence, the variable pay program because a tool that will be used as part of the selection strategy and by attracting employees who appreciate that given type of reward (Corby and Geoff 50). Usually, a variable pay program says a lot to the employee on the nature of the company. For example, it says a lot about the company and their ideologies towards employees. Some employees analyse a company through such directions as do the company share financial success with their employees, does the company appreciate individual and team works, and does the entire process entice prospective employees’ values. This indicates that the compensation plan usually takes different perspectives but its main goal is to ensure that the employees are motivated. In a situation that the market is competitive, the variable pay program plays a major role in that it forms the foundation that talent will be attracted through enhancement of the compensation package relative to potential employers package (Berger, 78). Thus, the increase of compensation package has made the strategy to become more popular and the employees have realised this through availing themselves to the organisation. This means that the use of variable pay program is become a more dependable attraction tool that is seen potential in attractive competitive employees and in that it champions the ability to succeed by the employees of the organisation. 5.0 Incentive Pay plans e.g. group or individual incentive In most instances, especially from the traditional perspective, the compensation plan can take either group or individual incentives. Some factors that can be used to determine eligibility of the incentive to the team or individual are performance mix, funding vehicle and the allocation model rather than utilising the overall success of the organisation. More organisations seek to ensure that individual behaviours are linked with the financial rewards, and thus the group and individual incentives are increasingly becoming popular. Moreover, perceiving that the incentives rewards are least partial and are within their control, either as a member of a team or individual contributor, then the opportunity of the given reward becomes an effective motivational tool for the employees. An example of a team incentive plan is the one that was developed by an aerospace organisation that links performance to team goals. In this example, members of between 50 and 500 employees form the teams. The teams’ success is determined by the achievement of given objectives and a team ‘score-card’ rating. However, if the requirements of a give section based on the rewards are not met, the employees can be compensated partially. Nevertheless, the incentive package can be as high as $1,600 for a year and initial incentive of $600 can be paid midyear if the team is performing depending on the conditions that were set (Corby and Geoff 90). Currently, the most used incentive is individual and different organisations contain different provisions that encompass both corporate and group objectives. The contributions and success of individual performance criteria makes this compensation plan to be individual. The individual compensation model is determined by the use of individual, team, function and company performance relative to predetermined performance objective. Hence, an individual compensation program should fact or into consideration the contributions of different members in ensuring that the employees benefits. Different strategies are available for use in individual compensation rewards. One of the strategies is the use of ‘Annual Incentive Award’ that is based upon individual and business performance and as well on the achievement of specific goals. Individual performance rating is used to reflect the success of employees’ contribution towards achievement of expected performance. Other method is rewarding individual employees in terms of functions within the organisation such as the sales, marketing and finance sections as per the company’s goals achieved. Spot ward is another form that can be used for individual incentive. Spot rewards can be defined as specific cash rewards that are given out at specific time rather than been compensated after completion of a predefined performance period. Such awards are functioned in the organisation budget and because of its nature, the award is usually offered promptly depending on the nature of contribution and this improves perceived linkage between the contributions to the award that was received. Moreover, the amount of such rewards usually vary and dependent on significance of contribution towards the organisation (Anderson and Sinangil, 102). 6.0 Other Variable Pay Considerations Apart from formulation and administration of variable pay program as an instrument of attraction and motivation, sufficient planning is required in communicating the plans and monitoring the effectiveness over time. The success of the incentive compensation plan is dependent of the perspective of the package towards the employee. Some factors that employees may use to understand the incentive program are their actions impact the success of the organisation, and how their individual and collective performance will impact their rewards. This means that the communication strategy is inherent in the success of the incentive plan. Thus, it is important for the organisation to continuously update their employees on the way towards accomplishment of respective objectives and so far how much they have contributed to the organisation regarding specified circumstances. Moreover, the scorecards should be posted on the notice boards or company’s intranet. Furthermore, it is paramount to continuously analyse and determine the impact of the variable pay to the employees, culture and organisation’s performance. Thus, some of the questions that may be asked include the impact of the incentive to other sectors of the department, extend of contribution towards the success of the organisation, or as the strategy resulted in unintended negative consequences in other areas that are important for the organisation. Hence, it is important for the organisation to ensure that they sanction periodic evaluation of the compensation plan and achievement of objectives that have been set. This will determine whether the objectives required are achieved relative to the financial investment in place (Corby and Geoff, 60). 7.0 Unspoken Assumptions There are a number of underlying assumptions that are behind variable pay concept championing the idea of motivation. Some of these assumptions are: Money motivates people to work harder – in most instances money is a powerful motivator. The amount of amount involved in variable pay determines extend in which the employee or staff are motivated. The higher the amount of money offered and clearly defined goals, the more quality and quantity work the employees and staff that they can accomplish resulting in the achievement of laid down goals and objectives. However, sometimes the idea of money may not be a motivator when utilised in a scenario that is not perfected. For example, the love of gardening is in the heart and even if monetary is involved, the outcome of the work is complementary compared to scenarios that gardener does not like the work. Thus, the use of money as a motivator should clearly be defined. Performance measurement – motivation is directly linked with performance. Appropriate tools and skills should be included to ensure that the employees are motivated. Some of ideas that are used in performance are good organisation, availability of appropriate skills, good strategy and host of other factors. Moreover, the type of measurement that should be used should factor into consideration conflict resolution strategies. For example, the method of performance measurement should not cause competition between department or create perception of favouritism. Thus, it is important that there should be appropriate framework to ensure that the entire process to prevent criticism or conflicts of interest (Anderson and Sinangil, 73). 8.0 Benefits and weaknesses of Variable Pay as a Motivation The advantages of use of variable pay programs include: This is an attractive initiative for the organisation management in that it converts labour costs into a variable cost. This strategy ties pay ton performance rather than using pay as an entitlement. Thus, when variable pay programs is used it ensures that employees and staff will concentrate on performance to income their income rather than depending for fixed monthly or salary pay. Some researchers have clearly documented that there is a link between profit sharing and profitability in a successful organisation (Anderson and Sinangil, 77). The use of variable pays as shown that, especially on the aspect of gain sharing, it increases productivity and have a positive impact towards employees’ attitudes. Hence, it enables bringing together different employees whether they have different ideologies or principles to accomplish a given task. Moreover, the use of variable pay has indicated that employees’ behaviour and attitude towards accomplishment of activity is championed. For example, the use of variable pay has shown that lower absenteeism, fewer lost time accidents and fewer grievances are evident when compared when other compensation strategies are used. However, some shortcomings that are associated with this strategy include: The use of the variable pay is exposed to unpredictability. This is commonly attributed to facts such has recession or company downturn resulting in decrease of employee compensation. Some strategies or forms e.g. bonuses may be expected and results in reinforcing effect wears off over time. Formulation and implementation of variable pay may result in future complications especially in relationship between employs and functions within the organisation. Use of variable pay may cause conflict between individuals or may prevent collaboration between departments and may hinder the success of the organisation at the end of the day. There may be a lack of clear understanding of goals and objectives for a given sector resulting in poor implementation of the strategy. 9.0 Conclusion Each incentive program that is used has both its fundamental directives to ensure that it is attractive and effective towards achieving the goals and objectives of the organisation. Hence, appropriate incentive program ensures that the desired talents are attracted and the employee behaviour is motivated. In determining the appropriate variable pay plan, the organisation should factor into consideration the compensation strategy and philosophy. For example, some of the factors that should be brought into consideration include the expected role of variable pay, the type of program to be utilised and approaches towards ensuring that the program is able to motivate and attract talent in different perspectives. When variable pay is used as a motivational tool, the strategy will support the achievement of the company objectives through focusing employees on the business drivers that are within their control and rewards the employees for the desired results and behaviours. Thus, if the performance expectations that are tired to the variable pay are realistic and attainable, the employees will follow the appropriate steps to ensure that they earn the additional rewards that are available resulting in contribution of organisation objectives. 10.0 Work Cited Anderson Neil and Sinangil Handan. Handbook of Industrial, Work and Organisational Psychology. New York: Sage Publishers, 2001. Belcher, John. How to Design and Implement a Results-Oriented Variable Pay System. New York: AMACOM Publishers, 1996. Berger, Doroty. The Compensation Handbook, 5th Ed. New York: McGraw Hill Publishers, 2008. Corby Susan and Geoff White. Employee Relations in the Public Service. London: Routledge Publishers, 1999. Maynard Harold and Zandin Kjell. Maynard’s Industrial Engineering Handbook. New York: McGraw Hill Publishers, 2001. Peck, Charles. Variable Pay: Non Traditional Programs for Motivation and Reward. New York: Conference Board Publishers, 1993. Read More