Pay for Performance
Traditionally, all incentive plans are “pay-for-performance” plans. They pay all employees based on the employee’s performance (Dessler). Compensation is a primary motivator for employees. People look for jobs that not only suit their creativity and talents, but compensate them both in terms of salary and other benefits accordingly. Compensation is also one of the fastest changing fields in Human Resources, as companies continue to investigate various ways of rewarding employees for performance. It is very important for organizations to make sure that the incentive plans are well structured to need the needs of the employee and in return make the organization profitable. Giving incentive pay to employees that has not earned them destroys the motivation and moral of employees which leads to less productivity. Thanks to public outcry, shareholder outrage, and increased government scrutiny, companies are making some adjustments to their executive incentive programs. At the very least, it gives the appearance of linking pay to performance. Most managers get short-term bonuses and long-term incentives in addition to salary.50 For firms offering short-term incentive plans, virtually all 96% provide those incentives in cash. For those offering long-term incentive plans, about 48% offer stock options. These aim to motivate and reward management for long-term corporate growth in shareholder value. The size of the bonus (in terms of percentage of salary) is usually greater for top-level executives (Dessler). Often times top level management incentives are just a bit too much. They are given large stock options, cash bonuses, and other high price incentives and often times they take advantage of the situation. Enron executives are a great example of taking advantage of a good thing. This is just one down fall of the incentive program, another issue would be employee moral decrease because they often times feels like management should not receive such large rewards