Employee Incentive Pay, Benefits, and Compensation Design

Methods to Determine Incentive Pay

The first method for determining incentive pay is to align the objectives of the incentive plan with the organization's business strategy (Gordon & Kaswin, 2010). The second method is to test the pay plan with a small group of employees in order to discover its defects or problems and to resolve them. Once these steps are completed and the plan appears appropriate, it should be implemented throughout the organization and regularly enforced (Gordon & Kaswin, 2010).

While incentive plans are major attractions to job applicants, businesses have increasingly shifted their focus to the risks that may accompany incentive compensation agreements (De Toro & Pohle, 2011). These risks are a major concern that companies cannot afford to overlook. Because embedded risks can be difficult to detect and manage, companies should adopt measures that align incentive pay with their goals, strategies, and the level of risk they are willing to accept. Key risks are presented by regulatory requirements and the interests of stakeholders (De Toro & Pohle, 2011).

Legally required employee benefits include minimum wage, overtime, social security, breaks, family leave time, protections against discrimination, and accommodations for disabilities (LaMarco, 2009).

Legal Requirements for Employee Benefits

The Fair Labor Standards Act (FLSA) establishes the federal minimum wage, although some states enact their own laws that may set higher rates (LaMarco, 2009). There are, however, exceptions to the minimum wage requirement. If an employee is likely to receive more than $30 a month in tips, his or her employer is not obligated to meet the full minimum wage threshold, as the employee retains all tips received. Other exceptions apply to students working to earn school credit, new employees who are under 20 years of age, and disabled persons working for community programs (LaMarco, 2009).

Hourly-paid employees who work in excess of 40 hours per week must be given overtime pay at a time-and-a-half rate (LaMarco, 2009). Overtime pay is not legally required for weekends and holidays unless the employee's total hours exceed the 40-hour weekly limit. Employers are also legally obligated to contribute the same rate to social security as is paid by the employee (LaMarco, 2009).

Breaks are legally required only in specific industries, such as transportation (LaMarco, 2009). Some states, however, mandate meal and rest breaks when work shifts exceed eight hours, though fewer than half of all states carry this requirement (LaMarco, 2009).

Both employees and employers may take family leave time, subject to their length of service (LaMarco, 2009). This benefit allows an employee to attend to an emergency family situation, such as the birth or adoption of a child, a serious health condition, or other qualifying circumstances. An employer is required to provide a minimum of 12 weeks of unpaid leave, though many companies and employees seek to modify the guidelines governing this entitlement (LaMarco, 2009).

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 in companies with more than 50 employees. Employees who are denied these benefits may take legal action against their employer (LaMarco, 2009).

On the whole, businesses may adjust company policy on employee benefits based on budget or other financial constraints (LaMarco, 2009). In such cases, these benefits can be legally modified with minimal risk, as relatively few employee benefits are mandated by law (LaMarco, 2009).