Employee Incentives and Reward Systems

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How do stakeholders’ perspectives, e.g., unions, society, shareholders, creditors, employees, influence compensation decisions?

Belcher (1996) articulates that stakeholders of any organization influence compensation decisions in numerous ways. This is in lieu of the fact that an organization exists in order to increase the value of the stakeholders. According to equity theory, the level of compensation compared with the amount of effort that employees put into their jobs determines the relationships in employment. When the comparison ratio exhibits inequalities, employees will feel exploited and seek other opportunities to reinstate equity.

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The actions that the employees take may not be beneficial to the organization. For instance, if employees hold a ‘go slow’ and refuse to cooperate with the management or even quit their positions, the organization will face challenges. To this end, the perception and perspectives of internal stakeholders (employees) will influence the management’s decisions on compensation (Belcher, 1996).

Further, it is important to note that labor unions that employees join influence the pay decisions of an organization. Both equity and reinforcement theories articulate that employees must perceive their compensation as fair and just. This motivates them to increase their productivity in order to receive a reward (competitive compensation). Trade unions act as the ‘go-between’ in organizations and influence the management to offer employees competitive pay that is above minimum wage. Employees also expect to receive good compensation according to expectancy theory (Belcher, 1996). The theoretical framework postulates that employees adopt specific behaviors depending on the manner in which an organization meets their expectations.

Finally, agency theory highlights the role of the stockholders in an organization. Since the organizations’ main objective is to increase the worth of the owners, they are likely to influence compensation decisions. The amount of compensation is likely to depend on the returns and profits that an organization makes. Indeed, compensation has a positive correlation with the profitability of the organization. Hence, various stakeholders influence compensation decisions in an organization.

To show the influence of the stakeholders, it is critical to imagine a company that pays its employees just above the minimum wage. The employees work for eight hours per day, and in case of overtime, the management does not compensate them. To this end, society will not see compensation as a measure of justice. In fact, the employees will have a minimized motivation leading to lowered productivity. The rationale is that the employees do not expect a reward regardless of their productivity. Some of them may also decide to quit the organization leading to a loss of skilled and talented employees. In the end, the organization will have considerably reduced its profits contrary to the belief that the aim of the company is to increase the value of the stockholders.

Second, the employees might decide to use their respective trade unions to agitate for improved compensation (Belcher, 1996). This is in line with many labor laws across the world. The employees may also adopt other methods such as strikes and ‘go-slows’ that might have a negative effect on the productivity and profitability of an organization. Additionally, the industrial court could consider the employees’ actions as legitimate and consequently authorize the organization to review the contracts. This way, the unions, and other stakeholders will have influenced the organization to make specific decisions on their compensation. The shareholders may also want to increase the profitability and, as such, recommend competitive remuneration for the employees.

Why are there different approaches to job evaluation? What approaches does your employer use? Why?

Job evaluation is the process of substantiating the value of a specific job when compared to other jobs (Milkovich & Newman, 2011). It attempts to link the compensation of an employee and the requirements of his or her job. With that in mind, there are various methods and models for conducting a job evaluation. The ranking method is the first method. It involves the ranking of jobs from top to bottom.

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Ranking depends on the value of the job as well as the organizational culture of merit. Besides, the method also appreciates that jobs could be ranked according to the difficulties of meeting specific job requirements (Miles & Snow, 2008). During the process, the jobs within an organization are evaluated as a whole as opposed to evaluating the important aspects of a job. Consequently, the jobs that occupy the highest rank are the most valuable for the company and vice versa. The rank, therefore, serves as a basis of making a rational compensation decision where employees receive pay that reflects their roles.

Second, the classification method is a more objective method of job evaluation when compared to the ranking method. Milkovich & Newman (2011) say that the method classifies a job in an organization into scales or grades. As such, each grade has a cluster of jobs that relate to each and require similar skills in fulfilling them. The higher the rank translates into higher compensation. Therefore, classification is a method that provides insights when rationalizing the compensation. Third, the point method has gained popularity in many organizations across the world. It involves the classification of jobs according to important aspects and factors (Levine & Tyson, 1990).

The factors then appear in a rank according to their priority and importance. Since each job has various important factors, all employees receive different points. The points, therefore, become the rationale for specific wage categories in the organization.

The point method is used in our organization. The rationale is that the method allows the evaluators to look into sub-factors of all jobs. Besides, the evaluators assign points in a systematic way to avoid the risk of subjectivity. This minimizes the bias that might be apparent when using other methods (Miles & Snow, 2008). The method of job evaluation also abides by the principle of scientific research of reliability. Since the evaluators use the same criteria during the process, it is possible to get similar results.

The method also has minimized rating error owing to the fact that the wage differences emerge due to the strength of factors identified during the process. Although jobs change in an organization due to the dynamic nature of the business environment, Kerr (2005) points out that the rating scales of this method remain unchanged. This helps the organization to be consistent and predictable in its compensation decisions.

The method also overcomes a myriad of weaknesses associated with other job evaluation methods. Particularly, the method is able to eliminate the possibility of classifying jobs into one ‘blanket category’ as is the case with the classification method (Belcher, 1996). Besides, the method eliminates the possibility of subjectivity when classifying different jobs. In the ranking method, evaluators may suffer the possibility of offending the workers when they rank them in a system that employees do not agree with (Milkovich & Newman, 2011). As such, the point method is acceptable across many organizations.

Why bother with job evaluation? Why not simply market price? How can job evaluation link internal consistency to external market pressures?

There is a widespread perception that job evaluation and market pricing exist as competitors. According to Miles & Snow (2008), market pricing refers to collecting data on compensation levels of other organizations with the aim of ensuring that the compensation rate of a company relates to the compensation rates of other organizations. As such, job evaluation and market pricing exist as compatible systems of compensation. The rationale is that market pricing suffers limitations that job evaluation can correct. For instance, market pricing is not accurate in determining the compensation of a specific job role. To this end, the organization may adopt a job evaluation process that is able to take into account the needs and requirements of a specific job (Miles & Snow, 2008).

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Second, an organization cannot do way with market pricing and utilize job evaluation as a single method of compensating employees (Kaufman, 1999). The reason is that organizations compete with other organizations in terms of attracting talented and skilled employees through compensation. This implies that an organization should use market pricing as a way of understanding the average compensation of employees in order to adjust its wage rates in a competitive way.

When an organization’s compensation is above the market price, it is likely to attract highly qualified employees who, in turn, increase the productivity of an organization (Kaufman, 1999). Besides, compensation rates are often viewed as a competitive tool, and as such, organizations refer to the market price to come up with competitive and rational pay rates.

Further, it is apparent that both methods of determining compensation provide critical information for a fair and equitable remuneration of employees. Market pricing provides the organization with information about the external factors of compensating employees (Kerr, 2005). In periods of high rates of unemployment due to excess labor and the need to reduce labor costs, market prices inform an organization on the way the job evaluation process is carried out (Milkovich & Newman, 2011).

An organization may refer to the market price when deciding the compensation rates of unique jobs and special situations. For instance, the organization may want to understand the average compensation of such jobs as IT specialists in the business environment. To this end, an organization can rarely survive with only one process of determining the compensation of employees.

In an organization, internal consistencies relate to the market pressures. Job evaluation may lead to the adoption of a poor method that creates inconsistencies within an organization. When such inconsistencies typify an organization’s pay structure, employees may seek to look out for other opportunities that minimize inconsistencies (Kerr, 2005). For instance, when an organization compensates a specific category of employees poorly, market pressures will make the employees seek other opportunities in other organizations where such jobs receive higher compensation. To this end, job evaluation is hugely dependent on the market pressures, especially when deciding the compensation rates.

As aforementioned, Kaufman (1999) asserts that an organization that pays employees below the market price due to internal inconsistencies may lose talented and experienced employees. To correct this, employers will ultimately adopt a job evaluation process that reduces inconsistencies in pay structure. Such a method is in line with the prevalent market pricing. This way, an organization is able to help employees to specialize, establish a meaningful relationship with the management, standardize their task fulfillment, and increase productivity. As such, there exists a positive correlation between internal consistency and market pressures.

What are the pros and cons of having employees involved in compensation decisions? What forms can employee involvement take?

According to equity and expectancy theories, employees play a vital role in the compensation decisions of an organization. This is because of the various advantages that an organization stands to gain. First, involving employees translates into increased motivation among the employees (Belcher, 1996). The employees feel that they are important within the organization and that the issues they raise are addressed. An increase in motivation culminates in increased productivity of the employees since the organizations are likely to make a favorable decision when structuring their pay. Due to expected rational compensation, the employees will have the required enthusiasm and motivation to fulfill their tasks.

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Second, employees’ involvement in compensation decisions leads to predictability of the organization’s performance and productivity. The reason is that employees will feel that the organization has considered their best interests, and as such, there is a limited chance of industrial action. Research has shown that over 46% of American organizations that involve their employees in compensation decisions have not experienced strikes and collective actions for the past five years (Milkovich & Newman, 2011).

To that end, the organizations are able to save time and other resources used to respond to litigations and employees demands. In addition, they are able to predict the future performance of the organization without considering the potential challenges associated with strikes and ‘go-slows’. The employers are consequently able to devise a long-term strategy that the organization should follow and become profitable.

Moreover, Milkovich & Wigdor (1991) assert that companies stand to benefit from improved work relations when they involve employees in compensation decisions. The employees get the perception that the employers appreciate them and that their sources of disquiet are addressed (Milkovich & Newman, 2011). Studies show that antagonism in work relations can deprive an organization of a substantial amount of revenues in terms of productivity. The employees feel that they receive compensation that is relational to the effort the put in their jobs.

Despite many advantages of involving the employees in making a compensation decision, there are equally many disadvantages. First, employees are able to make a comparison of pay with other employees (Levine & Tyson, 1990). Some employees are likely to lack motivation after they compare their salaries with those of other employees occupying high ranks within the organization. Second, the organization may lack the audacity of firing some employees in case of job cuts.

The decision to downsize an organization relates to compensation. Due to potential resistance that an organization may face in such cases, involving employees is not always the best solution. The decisions that tend to involve many stakeholders tend to be slow and consume a lot of time (Milkovich & Wigdor, 1991). Therefore, an organization may feel that a lot of time will be used when employees are involved in making important decisions.

Employee’s involvement in decision-making processes may assume various forms. At the outset, the organization may carry out a survey in all departments asking the employees to provide insights and opinions on the nature of compensation. The organization may also involve the employees during the recruitment processes where the potential employee gets the chance to give his or her desired wage rate. Departmental meetings are also a common platform where the human resource department gathers insights on the compensation desires of the employees. Finally, trade unions and collective bargaining is an avenue where employees can have their voices heard (Levine & Tyson, 1990).

What is the relevant market? What difference does it make when determining employee pay?

Relevant markets refer to labor markets that an organization draws its employees or lose them to competitors. Milkovich & Newman (2011) say that organizations perceive the relevant labor markets as filled with competitors. The rationale is that the markets are important in enhancing the ability of an organization to attract and retain skilled and talented employees. Employees who have similar skills and work within the same industry, therefore, compose relevant markets (Milkovich & Newman, 2011). Besides, relevant markets are imperative to an organization since they dictate the compensation of the employees.

Human resource managers have to study relevant markets when determining the level of compensation. This is in recognition of the fact that relevant markets make many differences during the determination of compensation level and model. At the outset, when an organization fails to recognize the relevant market, it may lose some of its talented and experienced employees. The reason is that the employees will seek other job opportunities within the relevant market. For instance, an accountant will look for a better job opportunity within the industry where there is a competitive pay structure. Losing talented employees may deprive an organization of a momentous competitive edge.

Milkovich & Newman (2011) postulate that relevant markets are instrumental in ensuring that an organization continues to attract not only qualified employees but also talented ones. Many employees who possess rare skills will always look out for employment opportunities with compensation levels that reflect their talent. Organizations in search of these skills, therefore, design their compensation models that aim to attract such employees.

Relevant markets are, therefore, important when determining compensation levels that reflect the labor market. Further, relevant markets help an organization to ensure its compensation model is in line with the minimum wage requirements. Particularly, employees within a specific industry belong to similar trade unions that assist them in the process of collective bargaining (Milkovich & Newman, 2011). As such, organizations must refer to relevant market to determine the compensation level and avoid litigations and industrial actions from employees.

Milkovich & Newman (2011) articulate that employers who face frequent litigations because of their unfavorable compensations lose on their public image and may be unable to attract the best-suited employees for a certain job opportunity. To that end, a relevant market is important and makes significant differences when determining the salaries and wages for employees.

Since relevant market acts as a reference point for organizations within a specific industry, adjusting the employees’ compensation is important to fit the compensation requirements. This is in lieu of the fact that many stakeholders have been in the limelight agitating for standardization of salaries within an industry (Milkovich & Newman, 2011). If a firm compensates employees above the level of the relevant market, it stands to attract more experienced employees than its competitors do.

This may lead to the monopolization of the labor market implying that the competitors may be unable to compete effectively. This is against the principles of perfect competition that are desirable within the labor market. Besides, compensating employees above the compensation level of the labor market may lead to increased labor costs that accrue the organization. In the current business environment, employers are seeking to reduce the labor costs as a way to trim down their production costs and increase the profit margins. Thus, a relevant market dictates the level of compensation in an organization.

Which competitive pay policy would you recommend to an employer? Why? Does it depend on circumstances faced by the employer? If so, which ones?

Competitive pay policies are important within a relevant labor market. It expresses the organization’s strategy within the labor market and ensures that the organization recruits the workers it requires to become successful. According to Milkovich & Newman (2011), effective competitive pay policies assist the human resource department of an organization to make appropriate decisions relating to the organizations’ investment in human capital.

It is therefore imperative for an organization to articulate its pay policy in a way that it benefits the shareholders and optimizes the effectiveness of its pay structure and program (Milkovich & Newman, 2011). An effective and competitive pay structure should be able to ensure that the organization continues to attract and retain the most talented and skilled employees. To that end, I would recommend total rewards model of compensation policy.

Kerr (2005) defines total rewards model as a policy that uses all available tools when attracting and retaining employees within an organization. The policy aims at motivating employees using all available elements of compensation. In this model, there various elements that makes it competitive. First, the employer must include compensation in terms of cash that an employer pays for the services offered by the employees. Second, the model also includes benefits that an organization provides to its employees that are not in terms of cash. They may include health and welfare programs that supplement the compensation paid in terms of cash.

In fact, Kerr (2005) says that benefits that employees stand to gain in employment motivate them more than the compensation offered on cash basis. Third, total reward model aims at improving the working conditions of the employees as an important retention and motivation tool. According to Kerr (2005), improved working conditions are less tangible when compared to the aforementioned two tools of attracting employees. They include the ability of compensation policy to recognize the performance of employees, self-development and career growth.

In designing a total reward model, an organization ought to consider the three components in order to come up with a competitive compensation policy (Milkovich & Newman, 2011). It is important to mention that an organization that fails to recognize the critical role of compensation, benefits and working conditions of employees during the process of designing a policy will ultimately be unable to position itself in the labor market.

Besides, the organization will be unable to compete effectively for talent within the labor market since it offers wages and incentive structures whose levels are below those offered by competitors (Milkovich & Newman, 2011). As such, employers must emphasize all elements of the model to ensure that it remains competitive. However, the total reward model is dependent on the circumstances that employer and the organization face.

These factors and circumstances include the external competitiveness of the organization. If an organization adopts a pay policy that is not in line with other policies adopted by competitors, it may be forced to increase its compensation and benefits that it provides to the employees (Milkovich & Newman, 2011). Besides, if an organization’s profit margin is minimal, the organization will automatically reduce its labor costs. This implies that it will be unable to ensure that the compensation and benefits are competitive as compared to the relative market. This is lieu of the fact that organizations have continued to reduce costs associated with labor and human capital. This is possible through the process of downsizing among other methods.

How would you design a compensation survey to set pay for a blue-collar, hourly-paid factory worker? How would you design a compensation survey for a white-collar, salaried financial manager? Will the techniques used and data collected differ? Why or why not?

On the one hand, when designing compensation survey for blue-collar employees who are paid on hourly basis will depend on various factors. First, it is important to consider internal alignment. It refers to the organization’s ability to compare between jobs and skills available within a company (Miles& Snow, 2008). The skills and the jobs should relate to the organization’s goals and strategy. For instance, it is important to compare a wide range of blue-collar jobs within an organization and their contributions towards the achievement of organization’s objectives. Comparisons between these jobs should target the ability of the jobs to satisfy the customers and stockholders (Miles& Snow, 2008).

Therefore, it is important to ensure that the organization is able to compare similar and dissimilar jobs within the company. This way, the managers are able to reveal the significant differences in pay rates across and within jobs leading to a compensation structure that is competitive and that matches the needs of employees (Belcher, 1996).

Belcher (1996) says that it is important to look at the external competitiveness of the pay model and policy for blue-collar jobs. External competitiveness allows an organization to compare its payment and compensation structure with other organizations within the relevant market (Miles& Snow, 2008). For instance, it is important to design a compensation survey that compares the compensation of workers who are paid on hourly workers across the industry.

If company X pays its blue-collar jobs at specific rate, company Y must be able to take cognizance of the fact that such data is important in arriving at a competitive compensation structure. Moreover, external competitiveness facilitates an organization to achieve the objectives of attracting retaining blue-collar workers when designing a pay policy or survey. In addition, it allows an organization to ensure that the costs associated with labor are similar across the industry.

It is also important to consider the contribution of the employees towards the achievement of organization’s goals across the industry (Belcher, 1996). This includes the productivity and performance of employees who are within the same pay rate. For instance, it is important to compare performance of blue-collar employees who receive similar salaries and wages across the relevant market. Thus, the compensation survey ought to dwell on the performance of the employees in order to ensure that the company does not offer similar compensation and get different and decreased performance from employees (Belcher, 1996).

Employees’ contribution and performance are core elements of the model and are able to enhance the competitiveness of the organization. Pay for performance model of compensation resonates well with the employees’ performance and as such, it is important to measure the employees’ performance against the pay. This leads to competitive compensation survey that reveals the levels of compensation and performance to expect from a specific employee.

On the other hand, the method of determining compensation survey for managers and white-collar employees may differ from the others. The rationale is that most companies focus on ‘headhunting’ during the process compensating senior employees and managers (Miles& Snow, 2008). As such, there are many variations in terms of performance and compensation for managers. Comparing the compensation of senior managers in a relevant market may not be the most effective way when embarking on a compensation survey.

What is a “pay for performance plan?” Does variable pay improve performance results? What evidence support your point of view?

Pay for performance is a compensation model in which the employees receive rewards depending on their performance. This is in recognition of the fact that employees are likely to be motivated when their salaries and wages reflect their performance. Pay for performance differs from other conventional methods of compensation in the sense that employees receive different ranges of salaries (Milkovich & Newman, 2011).

For instance, an employee who performs exceptionally within an organization receives a larger reward than others who exhibit minimum or decreased performance (Kerr, 2005). To that end, pay for performance model allows the organization to motivate and retain high performers. The rationale is that the employees who post improved and high performance are likely to get increased motivation than other employees who perform poorly. In this model, poor performers are unlikely to stay in the company since they feel demoralized when others receive increased pay.

Pay for performance compensation model is typical of variable salary and wage structures in many organizations. The rationale is that productivity of employees is the reference point for specific employee compensation. Kerr (2005) says that there is a widely held perspective that the model of compensation leads to improvement of performance by employees. The rationale is that employees become motivated and consequently increase their productivity.

This benefits the organization and the shareholders. Performance based pay has a theoretical framework that values group and teams. Indeed, the conceptual framework of the model is entrenched in the idea that individuals will work extra hard in the context of a group if the group’s efforts receive rewards. The compensation strategy promotes teamwork in the context of groups. As such, it has become typical with many companies and organizations across the world (Belcher, 1996).

In fact, companies reward employees extrinsically on condition that the teams they belong to achieve the set corporate goals. In a survey on the model, Miles & Snow (2008) say that an average of 57% of the respondents believed that the compensation strategy motivates teamwork. Since pay for performance compensation model can be at individual and group levels, most respondents attested that they preferred the model at the group level as opposed to individual compensation on performance.

Milkovich & Newman (2011) articulate that organizations seek to encourage their employees to improve their productivity in hope that they will get some valuable rewards. When viewed in the light of pay for performance compensation model, expectancy theory says that pay for performance will ultimately lead to improved performance for an organization. The theory motivates employees as illustrated by Kerr (2005).

However, the introduction of pay for performance model of compensation suffers challenges and constraints. In particular, Miles & Snow (2008) assert that employees become accustomed to the strategy and may continue to receive rewards despite the corporate performance pointing to the contrary. Since reinforcement and expectancy theories are the frameworks that drive performance-based pay model, it does not always imply that pay for performance model will always increase the productivity and motivation of employees. When the model is implemented at the individual level, employees who fail to improve their performance may fail to increase their efforts due to lack of motivation.

What are gain-sharing plans? What are the pros and cons of implementing them?

Gain sharing plans refers to compensation model in which the employees get motivation by sharing the profits and gains made by a company with the shareholders (Milkovich & Wigdor, 1991). This motivates employees to increase their productivity. In other words, when the financial performance of an organization improves, employees receive improved compensation. The aim of the plan is to involve the employees through active participation of the employees. However, gain sharing differs immensely with the concept of profit sharing in the sense that the latter focuses primarily on the profit margin.

Kerr (2005) says that gain-sharing plan has various important elements that illustrate the calculation of the bonus that employees receive. In addition, gain sharing also emphasizes on the involvement of all employees and is a development tool within an organization (Milkovich & Newman, 2011). The human resource department measures the organization’s improvement and use a predetermined method of calculating the dues of the employees. To allow participation and involvement of employees, the employees are able to evaluate and analyze the method of calculating their bonuses and rewards. This plan however has various advantages and disadvantages for both employees and organization.

At the outset, Kerr (2005) says that the plan develops a culture of performance within an organization. The rationale is that employees will always work hard to ensure that the organization continues to enjoy improved performance in order for them to reap bonuses and rewards. Considering that the performance of an organization in a specific financial year is compared to the previous performance of the organization, employees will attempt to increase their productivity consistently.

Second, gain sharing cultivates a culture of teamwork across the organization’s departments. When employees feel that a specific department is not performing, they will attempt to encourage the staff members of that department to improve the performance for all employees to gain in the improved rewards (Milkovich & Wigdor, 1991). Within departments, the employees will consequently encourage each other to enhance their productivity in order for them not to disappoint the entire organizations.

Third, it is important to mention that gain sharing leads to positive competition within the departments of the organization. The rationale is that all departments will compete to improve the entire performance of the organization. Besides, the compensation plan allows the employees to participate effectively during the process of designing a compensation model (Milkovich & Newman, 2011). As aforementioned, the employees access the compensation information and scrutinize it in line with their compensation needs. In other words, the plan involves all employees and the members of the senior management team. Over and above, gain sharing leads to heightened motivation among the employees when compared to other compensation models.

However, Milkovich & Newman (2011) articulate that gain sharing compensation plan suffers some disadvantages. First, lack of improved performance in an organization due to unforeseeable factors such as global economic crises implies that the employees will not receive increased compensation (Milkovich & Newman, 2011). This is notwithstanding their input in terms of productivity and effort. Besides, some employees may be tempted to take advantage of the performance of others since they receive equal benefits. This discourages employees who have dedicated momentous effort to increase the performance of the organization. Ultimately, this could lead to intentional reduction of productivity by some employees.

Where is the bulk of time spent in implementing and administering a benefits program? How would you go about implementing and administering a new benefit plan if asked to by your employer? Be specific and cite action steps.

Levine & Tyson (1990) assert that the process of conducting a compensation survey and consultation with the employees are the most rigorous processes that consume a bulk of time dedicated for implementing and administering a benefits plan for an organization. The rationale is that organizations have to identify their respective relevant market during the process of the survey. Besides, an organization ought to collect ample data and information when comparing the compensation levels of other organizations (Levine & Tyson, 1990).

This requires huge amount of resources. After the collection of information and data, it is important for the management to interpret and apply the information during the implementation of a specific benefit plan. According to Kerr (2005), the employees will always compare the benefits they enjoy when working in a particular organization with the relevant market. To that end, such approach as building grades and ranges that indicate the base and maximum benefits that the organization provides to the employees require high level of involvement and participation by the workers.

As such, the management ought to draw a regression line that depicts the pay ranges and apply the concepts of competitive pay when striking the balance of the pay ranges (Kerr, 2005). Besides, the collected information during the survey will enable the management to design grades for employees that they align internally.

When implementing and administering a benefit plan, it is important to begin by identification of the relevant labor market. The implementer of the plan should ensure that the benefit plan is competitive and it gives the company a competitive edge over the rivals. The compensation survey should ensue after the consultations with the employees. This is in recognition of the fact that employees must be involved in the process and participates meaningfully to enhance the success of the plan.

After the consultations, the implementer of the plan should device the best method of conducting a compensation survey using such method as benchmark approach (Milkovich & Newman, 2011). This will reveal the maximum and minimum wages and salaries that the organization should offer the employees. This possible through the analysis and interpretation of the data collected within the relevant labor market.

After deciding the amount of compensation, it is imperative for the implementer to involve the employees and allow them to scrutinize the proposed plan. This creates room for improvement of the plan in line with the needs of the employees. It is critical for the organization to involve all employees and ensure that they final compensation package reflects a competitive pay policy. Upon building consensus with the employees, the implementer should institute the policy and continue to enhance employees’ participation in order to retain the employees who may be aggrieved by the plan.

According to Levine & Tyson (1990), implementation of a benefit plan should be a gradual and systematic process. This way, the organization is able to address any issues that might emerge during and after the implementation of the plan. Milkovich & Newman (2011) argues that this is possible through continuous evaluation and appraisal of the process.


Belcher, G. (1996). How to Design and Implement a Results-Oriented Variable Pay Plan. Upper Saddle River, New Jersey: Prentice Hall Publishers.

Kaufman, R. (1999). The effects of Improshare on productivity. Industrial and Labor Relations Review, 45 (2), 311-322.

Kerr, J. (2005). Diversification strategies and managerial rewards. Academy of Management Journal, 28(6), 155-179.

Levine, I. & Tyson, D. (1990). Participation, productivity, and the firm’s environment. Washington, D.C.: Brookings Institution.

Miles, R, & Snow, C. (2008). Organizational strategy, structure, and process. New York: McGraw-Hill.

Milkovich, G. & Newman, J. (2011). Compensation. New York: McGraw Hill Publishers.

Milkovich, G. & Wigdor, A. (1991). Pay for performance. Washington, D.C.: National Academy Press.

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