Designing the Best Incentive Employee Plan

¶ … Employee Contributions WHERE CREDIT IS DUE Methods to Determine Incentive Pay The first method is to align the objectives of the incentive pay with the organization's business strategy (Gordon & Kaswin, 2010). The second method is to test the pay plan with a small group of employees to discover its defects or problems and to solve these. When these are accomplished and the plan seems appropriate, it should be implemented throughout the organization and regularly enforced (Gordon & Kaswin).

While incentive plans are major attractions to job applicants, businesses have shifted their focus on the risks, which may go along with incentive compensation agreements (De Toro & Pohle, 2011). These are a major concern to the company that cannot be overlooked. These embedded risks may be hard to detect and manage so that the company should adapt measures, which would align incentive pay with the company's goals, strategies and the level of risk it is willing to take. Risks are presented by regulations and stakeholders' interest (De Toro & Pohle).

II. Legal Requirements for Employee Benefits These are minimum wage, overtime, social security, breaks, family leave time, discrimination, and disabilities (LaMarco, 2009). Minimum Wage This is established by the Fair Trade Standards Act, although some states make their own laws covering this (LaMarco, 2009). There are, however, exceptions to the minimum wage requirement. If an employee is likely to receive more than $30 a month in the form of tips, his or her employer is not obliged to meet the minimum wage requirement. The employee can then keep all the tips.

Other exceptions are students who work to receive school credit, new employees who are below 20 years old and disabled persons working for community programs (LaMarco). Overtime, Social Security and Breaks Hourly-paid employees on a time-and-a-half rate in excess of the 40-hour-a-week arrangement should be given overtime pay (LaMarco, 2009). Overtime pay is not required by law for weekends and holidays unless the employee works beyond the 40-hour limit a week. Employers are also legally obliged to pay the same rate paid by the employee to social security (LaMarco).

Breaks are legally required only in specific industries, such as transportation (LaMarco, 2009). Some states, however, impose meal and rest breaks if work goes beyond 8 hours. Nonetheless, less than half of all the states have this requirement (LaMarco). Family Leave Time, Discrimination and Disabilities Both the employee and the employer may take family leave time, depending on their length of service (LaMarco, 2009).

This benefit allows the employee or employer to attend to an emergency family situation, such as the birth or adoption of a child, a health condition or simply a day-off. An employer is required to provide a minimum of 12 weeks of unpaid leave, although many companies and employees attempt to modify guidelines concerning this (LaMarco). Employees are also entitled to a safe work environment and freedom from discrimination and harassment (LaMarco, 2009).

An employer is required by law to provide reasonable accommodations for disabled employees if there are more than 50 employees in the company. Employees who are denied these benefits may take legal action against their employer (LaMarco). On the whole, businesses can adjust company policy on employee benefits, based on budget or other financial constraints (LaMarco, 2009). In such cases, these benefits can be legally modified without risks as there are only a few legally required employee benefits (LaMarco). III.

3 Additional Benefits and 2 Important Design Concept 3 Additional Benefits These may be bonuses, commissions, and stock or management incentives (Gordon & Kaswin, 2010; Quast, 2011). Bonuses are usually given to sales employees on a monthly, quarterly or yearly basis for achieving stated sales quotas. Studies show that about 72% of all companies offer bonuses as incentives to their sales personnel. Bonuses are in lump sums. Commissions are the second most common incentive for employees. These are a percentage of their total realized sales.

And stock or management incentives are offered to employees to share stock price increases in the market when they happen (Gordon & Kaswin, Quast). 2 Important Design Concepts One, the intended or potential incentive should be large enough to attract the employee's attention (Rourke, 2015). It should be attractive enough to keep them intent in pursuing the reward and to work harder. Two, The outcome to acquire the incentive should be within the employee's control or sphere of influence.

This makes profit sharing vulnerable to failure because the employee is not in a position to affect profit in any substantial degree. He or she, thus, cannot see how it connects to his or her work or reward (Rourke). IV. Efficacy of Techniques of Communicating Benefit Plans to Employees Communicating the implementation of an incentive pay plan is advisable when done consistently and systematically (Gordon & Kaswin, 2010).

It enables the employee to understand what is expected of him or her and eliminates or reduces the possibility of demoralizing him or her in case of misinterpretations. The importance of communication was a major finding in a survey conducted at the American Airlines where 74% of the employees expressed satisfaction over the strategy (Gordon & Kaswin). Any change in an employee's pay will always affect him or her, whether the rationale or technique is positive or negative (De Toro & Pohle, 2010).

This is because pay is the most important part of his or her employment, in the first place. A compensation plan can succeed or win the cooperation of employees if they fully understand it. They can fully understand and cooperate with it only if it is clearly and completely communicated, whatever the technique used (De Toro & Pohle). 2 Ethical Risks of Incentives Larger than Total Compensation Total compensation represents all the rewards, compensations an benefits, whether direct or indirect, given to an employee (Nayab, 2011).

The major issues surrounding total compensation include the establishment of a base compensation package, the difference between the costs to the company and costs to the employee, variable pay elements, and legal compliance (Nayab). There are ethical issues that can ensue when incentives become bigger than total employee compensation (Grant & Sugarman, 2004). Incentives can be a source of influence from the giver to the recipient. Inappropriate incentives can corrupt the judgment of the recipient to perform certain things for the benefit of the giver.

Another ethical issue is the use of incentives, which are larger than the total employee compensation, to recruit or retain a certain employee (Grant & Sugarman). One way of reducing these risks is for the management to be keenly aware of employee dynamics and motivation towards overblown incentives (Grant & Sugarman, 2004). This can be done only in a deeper and discerning manner. Employees will not react to this type of incentive in a uniform way.

Management should be as familiar as possible with the personality types of its employees (Grant & Sugarman).