Introduction
The idea to be discussed in this paper is an incentive-based program (IBP) for employees. “Incentives are putative consequences delivered to an employee contingent on the occurrence of desired behavior or reaching a performance criterion” (Henley, 2021). Therefore, IBP implies the design of relevant incentives to motivate employees and appropriate criteria to measure their performance against. As a result of such actions, the program predicts higher employee motivation, subsequently improving employee performance. Numerous researches have explored the topic and confirmed the effectiveness of different IBPs to varying degrees across the industries (Jaworski et al., 2018; Landry et al., 2017; Marium et al., 2017). Therefore, an overall rise in productivity and performance is to be expected if IBP is designed correctly and suits business and working environments. This is especially important in the case of military vehicles production within the defense industry, as the payment is only transferred if a set number of vehicles is produced. Thus, it can be observed that IBP falls in line with the business model and philosophy of the company.
Cost of Incentive-based program
Within this paper, the IBP concept is realized as a performance-based bonus system that considers employees’ qualitative and quantitative results within a specific time period – most likely annually. While there are different types of incentives, the IBP suggested in this paper will focus on financial bonuses. Of course, the significance of intangible benefits, such as recognition and praise, is undoubtful for any company, and they can effectively improve the performance of employees as well (Schoon, 2014). However, such benefits’ costs and potential profits are problematic to measure; moreover, in most cases, both employers and employees perceive monetary incentives as more valuable. In the case this paper examines, it is assumed that some intangible rewards are present, yet the central part of the IBP is a financial one. The system will financially reward employees who will meet their standards and those who will outperform the expectations; others will not receive any type of incentive. To conduct a proper cost-benefit analysis (CBA), potential financial gains will be projected and compared to potential costs using relevant research examples.
To calculate the potential benefits that an employee-centered IBP can bring, it is necessary to pay attention to previous research across the industries to collect the data for relevant approximations. The study by Bareket-Bojmel et al. (2016) is one of the precise ones as it featured an experiment with more than a hundred participants who were technicians. Different types of monetary and non-monetary bonuses were introduced for the participants, and on average, the introduction of performance-based rewards increased the productivity of partakers by around 6% (Bareket-Bojmel et al., 2016). Even more important, such a significant boost in productivity was achieved due to the introduction of a relatively small monetary bonus. The bonus was around 25$ per – less than 1% of the average salary in Israel at that time. This case is highly relevant for the research in terms of the nature of the work that was done by participants and the results of the experiment that support the introduction of monetary IBP. Moreover, the research demonstrated another strong side of IBP introduction – the reduction in absenteeism, which decreased three times during the performance measuring period.
The calculation of the cost increase within the overall equation is quite simple, assuming the model where the financial bonuses are just added to the current labor costs, as it was during the experiment. In that case, the company’s labor cost will grow only by the amount invested in the mentioned financial incentives. It is possible to firstly measure the expected benefits and then adjust the costs accordingly. Within a more complicated model where the more flexible performance-based payment replaces a part of the initial fixed salary, it is possible to keep the costs constant while increasing company profits (Henley, 2021). Using a more straightforward system and based on the previous calculations, it is possible to achieve a 5-6% boost in employee performance by introducing financial incentives of around 1% of an employee’s salary. Regarding the opportunity costs, it is almost impossible to find another way of investing such a small amount of money with such a significant output.
Conclusion
Businesses have used iBPs and other types of performance-based systems for a long time, and they have proved their effectiveness from both empiric and scientific perspectives. This paper explored the efficacy of employee-focused IBPs overall and the prospects of their implementation within the defense industry. Cost and benefit analysis was conducted to assess the issue. As a result, based on the existing data, it is safe to assume that implementing a financial incentive-based system within the framework of the considered business will positively affect it. This implies a long-term increase in the business’s profitability and stability of the monetary inflows. However, as it was mentioned earlier, the projected model is only a simplified version of the system; therefore, some aspects of designing a proper IBP were ignored. The real-life implementation may require a much longer calibration process and a much more careful process of designing. While overall, the results of the modeling can be viewed as positive, it is essential to remember the mentioned limitations.
References
Bareket-Bojmel, L., Hochman, G. & Ariely, D. (2016). It’s (not) all about Jacksons. Journal of Management, 43(2), 534-554. Web.
Henley, A.J. (2021). 9 employee-focused incentive-based programs. In J.K. Luiselli, R.M. Gardner, F.L. Bird & H. Maguire (Eds.), Organizational behavior management approaches for intellectual and developmental disabilities. Routledge.
Jaworski, C., Ravichandran, S., Karpinski, A.C. & Singh, S. (2018). The effects of training satisfaction, employee benefits, and incentives on part-time employees’ commitment. International Journal of Hospitality Management, 74, 1-12. Web.
Landry, A.T., Gagné, M., Forest, J., Guerrero, S., Séguin, M. & Papachristopoulos, K. (2017). The relation between financial incentives, motivation, and performance. Journal of Personnel Psychology, 16(2), 61-76. Web.
Marium, Z., Karim, E. & Abbas, O. (2017). Factors of workplace environment that affects employee performance in an organization: A study on Greenwich university of Karachi. MPRA, (78822). Web.
Schoon, D.G. (2014). Workforce incentives that increase the efficiency of organizations’ workforce [PDF document]. Web.