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The Effectiveness of Incentive Pay

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Group incentive plans emphasize on team arrangements and problem-solving, it also encourages and ensures team collaboration (Rao). There are two main types of group incentives, team-based incentive plans and gainsharing plans. In both incentive plans, employees are rewarded as a team after achieving a specific goal. Many organizations identify these programs based on a specific type of team. There are work process teams, project teams and parallel teams. Although rewards are generated by the outcomes of teamwork, the incentive payments are distributed individually (Martocchio 89). In addition to these group, incentive plans companies may also use The Scanlon and the Rucker plans.

In the Scanlon plan, employees are encouraged and get involved in company activities. It emphasizes teamwork and allows employees to obtain self-control. Employees receive monetary rewards according to productivity improvement and teamwork. Furthermore, like the Scanlon plan, the Rucker plan also encourages teamwork however, the main difference is that this type of plan uses a value-added formula to measure productivity (Martocchio 92). Lastly, some companies may use companywide incentive plans, which are measured by company profits, cost containment, market share, and sales revenue (Martocchio 84).

Companies use two types of incentive plans, which include profit sharing and employee stock option. They use these incentives to allow employees to earn additional income depending on company profits. In addition, employees are also given the opportunity to buy shares of the company’ s stock. With this type of incentive plan, all employees are given the opportunity to participate and they are rewarded based on the success of the company as a whole (Rao). Incentive pay plans are relevant to the wage and salary administration because it can help reduce labor costs.

Instead of increasing employees’ base pay which will be more costly, they use an incentive which is only a one-time payment based on the productivity of the company.  

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