Assignment # 3

1. Explain how you would apply five motivational theories in formulating an

incentive plan?

A) Motivational Theories are broadly classified into content theories and process
theories, the former evaluates on why the human needs a change and the latter
evaluates how the person needs affect the human behavior.

In an organization these theories are applied in assessing the employee’s behavior

and to frame the career enhancement policies with respect to the organization
goals.

Application of Content theories:

Maslow’s Theory of Needs:

Organization policies are framed in such a way to meet the above needs of the
employees. Generally job is considered to be an esteem needs and self-
actualization, Policies like career enhancement, Self-Appraisal, Timely promotions,
Learning and development are laid down to achieve the esteem and self-
actualization needs of employees. However organizations also ensure the
physiological, safety and social needs are fulfilled.

Hertzberg’s two factor theory:

This theory demonstrates two factors: Hygiene and Motivation. Hygiene factors at
workplace includes supervisors, workplace conditions, Security assurance. The
policies like anti sexual harassment, late night transport policies, Hygiene work
culture etc., ensure the Hygiene needs of the employees.

Motivation: Awards and recognition, Greater responsibilities and learning

opportunities, makes employee motivated to work and continues with the
organization.
 Financial incentives: Financial rewards paid to workers whose production
exceeds some predetermined standard.
 Productivity: The ratio of outputs (goods and services) divided by the inputs
(resources such as labor and capital).
 Fair day's work: Output standards devised based on careful, scientific analysis.
 Scientific management movement: Mgt approach based on improving work
methods through observation and analysis.
 Variable pay: Any plan that ties pay to productivity or profitability, usually as one-
time lump payments.
 Intrinsic motivation: Motivation that derives from the pleasure someone gets
from doing the job or task.
 Expectancy: (in terms of probability) that his or her effort will lead to
performance.
 Instrumentality: individual's perceived connection (if any) between successful
performance and actually obtaining the rewards.
 Valence: represents the perceived value the person attaches to the reward.
 Behavior modification: means changing behavior through rewards or
punishments that are contingent upon performance.
 Employee incentives and the law: The employer must comply with the overtime
provisions of the Fair Labor Standards Act (FLSA) when designing and
administering its incentive plans. Certain bonuses are excludable from overtime
pay calculations. However, many other types of incentive pay must be included.
 2. Discuss the main incentives for individual employees?

A) Employee incentives can be any award, programmed, or recognition at work that

encourages employees. Employers frequently use employee incentives to
encourage productivity, promote good conduct, and boost employee
performance.

According to research, employee incentives do improve productivity, job happiness,

and organizational commitment. To put it another way, employee incentives can be
tools for enhancing staff retention. But it can also encourage your staff to achieve
their objectives while also enhancing the working environment.

We'll cover more advantages of beginning an employee reward programed soon.

Let's first examine the various employee incentive programmers.

There are plenty of types of employee incentives. We’ve rounded up a list of eleven
employee incentives that are commonly used in the workplace:
 Monetary incentives or financial incentives (like profit sharing, gift cards,
even cash).
 Employee recognition programs (including awards).
 Team-building activities or other ways to build connections.
 Employee appreciation gifts.
 Professional development opportunities.
 A rewards program or some sort of reward system.
 Tuition reimbursement.
 Learning and development stipend.
 Gym membership or other wellness programs.
 Ability to work from home (especially pre-pandemic).
 Employee perks (like discounts to certain retailers, exclusive deals on
different products, onsite appointments or experiences).
On its face, it looks like employee incentives can amount to a big expense for
organizations. And while it’s true that some organizations may spend money on their
incentive programs, it’s also true that employers will reap the benefits. Here are six
benefits of using employee incentives at your organization:

 It increases employee retention.

 It increases employee engagement.
 It can boost employee morale.
 It can help unlock employee motivation.
 It enhances the company culture.
 It promotes overall worker well-being.

3. Discuss the pros and cons of commission versus straight pay incentives for
salespersons?

A) It goes without saying that you want a top-performing, driven, and

successful sales force to market your goods or services. You might be
surprised to learn, however, that the kind of sales pay you provide may
have a significant impact on the productivity and motivation of your
agents.

All sales compensation schemes should encourage sales agents to seek out
and act upon opportunities, whether alone or with a team, in order to boost
sales. However, the structure of sales compensation plans varies greatly, so
you must take care to adopt the correct plan for your team and your
company's objectives. If not, your strategy can end up undermining your
efforts.

Here are the advantages and disadvantages of several sales compensation

strategies to help you get started.

Straight Salary:

Straight salary is just what you’d expect: you offer your reps a yearly
salary, and that’s it. No commission or any other type of compensation on
top.

Pros:

 This structure is ideal for industries whose regulatory structure

prohibits direct sales.
  Straight salary can make all sales people equal members, which is
best when they’re working as part of a team or a small group and
when everyone contributes equally to the sales goals.
 It can help you attract new talent with the promise of consistent pay,
no matter how they perform.
 No surprise payroll expenses will occur.
Cons:

 Straight salary might not be tempting to top-performing sales reps

who want to make as much money as they can through hard work and
dedication. It tends to only attract less experienced staff who want a
“safe” pay structure.
 It could reduce retention and increase turnover. If your sales people
have no opportunities to make more income, they might find a new
organization where commission is offered.
 There is no monetary incentive for your sales people to improve
performance and get more sales so they might become lazy.
 No competitive environment between sales people, which can limit
the growth of your organization.
 This structure pays not only for sales made, but also for non-selling
activities and wasted time, which could lessen the value of the money
paid.
Salary plus Commission:
Salary plus commission is one of the most common sales compensation plans used
in sales organizations. It combines a lower base salary with commission, typically
on a percentage of sales, to arrive at total compensation.
Pros:
 Salary plus commission offers a better balance of income security with the
possibility of making more.
 Your sales people are incentivized to work harder to attain sales targets for
more cash.
Cons:
  This type of compensation plan can be more complex to administer.

Commission Only:
Commission only compensation plans offer remuneration only on sales made.
There is no guarantee of income if revenue isn’t generated.
Pros:
 Commission only sales compensation plans are easy to administer.
 These plans remunerate sales reps based solely on sales achieves, equating
to a better value for your money paid.
 Commission only tends to attract fewer candidates in the hiring process, but
does tend to attract the most eager and top-performing sales people who
know they can make a good income off of their selling skills and experience.
 Sales people tend to be able to make their own schedules with commission
only sales compensation plans, which can improve morale and satisfaction.
Cons:
 These plans can create aggression and high competition within your sales
team.
 It can create low income security for your reps with no guaranteed income,
which can lead to high turnover.
 Sales people who worry about the risk of no income guarantee might
burnout quickly from the stress.
Profit Margin/Revenue:
Rewarding your sales people based largely on how your company is performing is
known as profit margin or revenue-based sales compensation plans.
Pros:
 It’s ideal for startups that do not have liquidity in early stages.
 It encourages company loyalty.
Cons:
  You’d typically have to incorporate long-term incentives to attract and retain
sales people, such as stock shares.
As you can see, all sales compensation plans have their pros and cons. Not every
plan will be right for your type of organization. The size of your workforce, the
products or services you sell, the age and stability of your company, the goals you
have, and the type of sales people you want to attract will all need to be factored
into your decision when designing a compensation plan.

4. Describe the main incentives for managers and executives?

A) Incentives for Managers and Executives:

Short-term Incentives (annual bonus). Long-term Incentives (capital
accumulation plans).
Annual Bonus Decisions:
 Eligibility.
 Fund size.
 Determining individual awards.
Long-Term Incentives:
 Stock options.
 Book value plan.
 Stock appreciation rights.
 Performance achievement plan.
 Restricted stock plans.
 Phantom stock plans.
 Performance plans.
Incentives for Salespeople:
Salary Plan (fixed salary), Commission Plan (pay in direct proportion to sales),
Combination Plan (salary plus commission).
Incentives for Other Professionals:
 a) Merit Pay:
 Salary increase awarded to an employee.
 Based on individual performance.
 Effectiveness based on validity of performance appraisal system.
 Sometimes paid as a lump sum without changing base salary.

b) Incentives for Other Professionals:

 Bonus represents small portion of total pay.
 Incentives based on results longer than one year.
 Up-to-date equipment and facilities.
 Supportive management style -support for research publications.

Organization-Wide Incentive Plans:

 Profit sharing plans
 Employee share purchase/stock ownership plans
 Scanlon plans
 Gainsharing plans
 At-risk variable pay plans.

a) Scanlon Plan:
-Engages many or all employees in a common effort to achieve a company’s productivity
objectives.
-Any resulting incremental cost-savings shared among employees and the company.

b) Gainsharing Plans Success Factors:

Clear guidelines regarding plan changes, Joint development of the plan, Cooperation between
management and labor, Effective communication, setting achievable goals.

Short-Term Incentives for Managers and Executives:

Annual bonus:
Plans that are designed to motivate short- term performance of managers and are
tied to company profitability.
 Eligibility basis: job level, base salary, and impact on profitability.
 Fund size basis: nondeductible formula (net income) or deductible formula (profitability).
 Individual awards: personal performance/contribution.
5. Name and define the most popular organization wide variable pay plans?

A) A gain-sharing plan is a popular type of organization-wide variable pay plan. The

purpose of gainsharing is to tie the employee to the performance measures.
Although clear performance-reward connections can be made in these
circumstances, it is difficult to make a performance-effort connection.

6. Outline the steps in designing effective incentive plans?

A) Steps for Designing Effective Incentive Programs:

1) Set Goals & Objectives:

Identify what goal/objective needs to be accomplished, for example,

improved attendance, increased sales, reduced cycle times, etc. The
objectives must be simple, specific, and obtainable. Begin with not more
than 3 clear, briefly stated objectives and communicate them to all
participants.

2) Identify the Audience:

The entire employee or consumer audience is probably not your target.

Identify which individuals or teams can achieve your goals and objectives;
those are your program participants.

3) Fact-Finding & Involvement:

Programs are always more effective if you can get input from representatives
of the participant audience. Inviting input on the rules, rewards and other
aspects of the program will increase ownership and engagement in the
program. What steps will be necessary to achieve the goals? Do participants
have the resources they need in order to achieve them?
4) Program Structure & Budget:

Build the foundation of the Incentive Program carefully, expanding on the

methodology to be used. This is where you decide whether you’ll use an
open-ended or closed-ended program design and identify your fixed and
variable costs. An open-ended program is harder to budget but can be funded
through incremental sales or other gains; a closed-ended program is easier to
budget and may allow for larger rewards because you’ll have a set number
of winners but may not be as motivating for your participant audience if the
rules are not carefully structured.

5) Select the Rewards:

Employee rewards and recognition should be consistent with the brand of

your company and appeal to your participant audience. Don’t make these
decisions in a vacuum. The more you invite input from your audience on the
types of rewards they’ll appreciate, the more effective your program will be.
Of course, your reward vehicle will need to fit within the budget parameters
that you’ve set.

6) Communication & Training:

Decide how you will announce and launch the program. Develop a
communication strategy to keep participants updated and engaged
throughout the program. Branded programs are typically more effective than
generic programs. Training management in the execution of the program is
critically important to the success of the program or campaign.

7) Tracking & Administration:

Decide which elements you’ll track and develop the system to track them.
Administration may account for approximately 20% of the program budget.
The right program dashboard or other technology can help to reduce the time
spent on administration.

8) Fulfillment:

The more immediate, the better. Technological advances allow participants

to redeem rewards online and, in some cases, the rewards may be digital. It’s
also important that the reward and fulfillment experience is consistent with
your company’s brand attributes.

9) Evaluate & Measure:

Did the Incentive Program achieve its objectives? Were the participants
motivated to change their behavior? What outside factors contributed to the
success (or not) of the program? Every element that you measure can inform
your next program parameters to ensure greater success in the future.

10) Celebrate Success:

Communicate the employee rewards and results of the recognition program

with your audience. Share how the program impacted company performance
and celebrate both individual and team achievements. Support from top
management is critical, so make sure company leaders are involved in
presentations. If you have remote workers, consider web events or other
ways in which to involve all participants in the celebration.