Company\'s Ability to Achieve Competitive Advantage

Competitive Advantage and Employee Compensation

Indicate whether you agree or disagree with following statement: "Individual incentive plans are less preferable than group incentives and companywide incentives" Explain your answers.

Providing incentive plans for employees can be a complex assignment. While employee motivation comes from within, it is incumbent upon the organization to find ways of channeling that motivation into a commitment to the goals of the broader organization. According to available research, the best way to do this is to structure and incentivization and compensation plan that is consistent, standardized and streamlined. This can be especially difficult to achieve in the context of an individual incentive plan. Here, the differentiation between incentive opportunities depending on position or even on individual may threaten the morale and motivation of personnel who feel slighted by the hierarchy.

According to the text by the VisionLink Advisory Group (2011), the reason that group incentive plans are preferable is because the prevent a sense among some employees that they have lesser access to performance rewards than some of their counterparts. The VisionLink Advisory Group notes that "if indicators are not properly defined, a compensation plan can potentially deflate the motivation of employees. This happens when a member of the workforce doesn't feel as though there is alignment between his or her role and how rewards are earned. This creates frustration and disillusionment, two conditions that are at odds with a positive focus and a culture of confidence." (p. 1) This denotes the need for an approach to incentivization that achieves a feeling among all employees that their contributions are fairly valued.

A merit-based pay system may be an appealing way to approach this quandary. However, it is important, VisionLink indicates, to establish a compensation strategy in which performance evaluations are objective, consistent and perceived as being fair. A merit-based pay strategy in which indicators are unclear or improperly assessed may lead to resentment and lowered morale. By contrast, there is a significant opportunity to motivate personnel by achieving an incentive structure that is clear, attainable and equally distributed.

2. Critics of profit sharing plans maintain that these plans do not motivate employees to perform at higher levels. Under what conditions are profit sharing plans not likely to motivate employees?

The profit-sharing strategy is a popular strategy for achieving a standardization employee compensation system that is company-wide. However, it is also a strategy that has the potential to be critically flawed under the wrong conditions. Among them, the text by Anderson (2010) points out that profit-sharing is a compensation strategy where a pool of funds is accumulated based on company performance and where "an employee receives a portion of this pool. For example, you receive an amount according to your wages or base salary. An organization might contribute your portion directly to a retirement program, such as a 401K." (p. 1)

An immediately evident flaw is the high level of correlation between one's base wages and this form of compensation. While this is seen as a rational way of evaluating the contributions made by a given employee to the organization's long-term success, it also magnifies the wage inequality that often permeates most companies. This profit-sharing strategy highlights the wage gap between executives and employees.