In modern organizational management, there is need to focus on employee motivation. Over the last few decades, various studies have shown that organizations that have the best employee motivation programs almost always achieve the highest level of performance. Consequently, researchers, organizational leaders, and critiques agree that motivating employees is the best way through which an organization can achieve its objectives, regardless of the type of business it conducts (Antoni et al., 2017). Therefore, the identified incentive-based program, as previously mentioned, seeks to predict higher employee motivation, subsequently improving their performance. The idea is to design the IBP in a way that it suits the organization’s business as well as working environment. It is worth repeating that our business is involved in producing military vehicles within the American defense sector. Specifically, extra payment in the form of bonus to the company employees is delivered when they reach a specific set number of vehicles in production, and which must all meet the set quality and safety standards.
Nevertheless, there are various risks associated with incentive-based programs, which can have negative impacts on the company. First, there is a high risk of resulting in unchecked targets. For instance, in some cases, an incentive-based compensation program may result in innovation from the organization’s executives to grow revenue for the company and create value for the owners (Antoni et al., 2017). Although such a program may not necessarily align with the long-term objectives of the organization. In particular, it is worth noting that sales and revenue are not short-term goals, which implies that the program cannot be sustainable in such conditions. In such a case, the company will suffer financially because of the misalignment between the long-term objectives of the company and the incentive-based program for motivating the employees.
Secondly, there is a high risk of poor communication, especially where there is failure to obtain executive or input of the corporate board. If the executive body and/or the board fails to contribute in defining the performance goals and any other changing performance standards, then the incentive-based program can be poorly implemented and executed (van den Brand et al., 2018). A poorly drafted compensation plan for the employees may arise and fail to meet the expected goals and objective of motivating the workforce.
Third, poor monitoring and updating the compensation program is a risk likely to arise when the company implements the incentive-based employee motivation program. Normally, organizations should regularly review their compensation policies and plans as a way of monitoring and ensuring that such a program is reflecting the current goals such as meeting the objectives of risk management (van den Brand et al., 2018). If there are no reviews and monitoring efforts, the incentive-based program for employee motivation can fail to reflect the current goals, including risk management objectives.
A very critical risk issue is related to the concept of culture, especially for multinational organizations that operate in different geographical areas and countries across the world. In case of the current company, it is worth noting that it makes and sells military vehicles to other governments in Asia, Europe, Americas, and Africa. In all these areas, the company has facilities that ensure flawless making and selling of the products. In these facilities, it employs locals in various positions who work together with Americans (Prince, Prince & Kabst, 2020). Therefore, the incentive-based program can be affected by the problem of culture differences, especially where some cultures have different values attached to monetary compensations. In Saudi Arabia, Japan, and other countries, monetary compensations are less valued compared to the Western nations. Workers in such cultures can feel that the programs are designed to make them work more than required in their countries. In the same manner, the company will need to have a uniform compensation plan that does not discriminate employees based on their culture and level of income, regardless of their locations.
Fortunately, there is always an opportunity to manage most of the risks associated with the incentive-based programs for motivating employees in an organization. Past studies have shown that companies can consider a number of methods or strategies that are effective to mitigate and manage these risks and avoid suffering financial consequences. It is advisable that the company keep the program simple and relevant, which means that they should not be used to stretch the corporate budget. Secondly, the programs should focus on the long-term rather than short-term objectives (Kesner, Tays & Kwech, 2017). Third, the board and the executive bodies should be involved to ensure that they provide their input during the planning and execution process. It is also recommended that the companies ensure that the culture of taking risks is appropriate and implemented right from the top level of management.
Another strategy that the company should take is to ensure that there are regular internal audits designed to review the program objectively and independently. At the same time, the company should establish a compensation office or committee, which should work together with the risk management section. The idea is to ensure that the two committees communicate regularly to discuss major risks and the company’s objectives. In this way, the company can identify, mitigate, and manage the potential risks associated with the implementation and execution of incentive-based programs (Gadsden et al., 2021). It is also important that the organization make risk adjustments to the program by considering whether the involved teams operate within the designated risk framework for the entire company. Finally, there should be a limit or cap on the amount of compensation that the employees can earn above their salaries. In this way, it is possible to reduce the risk of having to stress the company’s budget for the sake of motivating the employees.
Antoni, C. H., Baeten, X., Perkins, S. J., Shaw, J. D., & Vartiainen, M. (2017). Reward management. Journal of Personnel Psychology. Web.
Gadsden, T., Jan, S., Sujarwoto, S., Kusumo, B. E., & Palagyi, A. (2021). Assessing the feasibility and acceptability of a financial versus behavioural incentive-based intervention for community health workers in rural Indonesia. Pilot and Feasibility Studies, 7(1), 1-10. Web.
Kesner, M., Tays, T., & Kwech, J. (2017). Assessing risk in incentive compensation plans. Wall Street Journal (Jun 23). Web.
Prince, N. R., Prince, J. B., & Kabst, R. (2020). National culture and incentives: Are incentive practices always good?. Journal of World Business, 55(3), 101075. Web.
van den Brand, F. A., Nagelhout, G. E., Winkens, B., Chavannes, N. H., & van Schayck, O. C. (2018). Effect of a workplace-based group training programme combined with financial incentives on smoking cessation: A cluster-randomised controlled trial. The Lancet Public Health, 3(11), e536-e544. Web.