Strategic Compensation Text About Person-Focused Pay Programs

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1. Discuss the differences between traditional pay systems and incentive pay systems. Which system would you prefer to be used at your company? Explain your choice.

Traditional pay and incentive pay systems evaluate employees differently. With incentive pay, employees are evaluated based on the objective criteria set up. For example, incentive pay (also known as performance pay) may be based on the number of items pulled in a distribution center or the sales generated. With traditional pay, employees' compensation is adjusted based on subjective evaluations occurring at set intervals (annually, semi-annually). With incentive pay, an employee makes a different amount, based on their performance. With a traditional pay system, an employee makes a set amount. A variable payroll impacts a company's operation. Should sales be down, a company will not have the same fixed costs with incentive pay, compared to performance pay (Martocchio, 2013). Incentive pay encourages employees to work harder or better (i.e., more accurately), since their pay is directly tied to results. While a traditional pay system is also tied to result, it is more loosely connected. With incentive pay, management and employees can use data to understand how employees are performing, since all performance is measured. This is less visible in a traditional pay system.

I would prefer to use incentive pay at my company. As an employee I would be likely to work harder (and thus be rewarded more) for my efforts. As an owner, I would like to reward hard workers, inspire employees to work towards helping the company, and reduce costs during times of lower sales.

2. Explain what constitutes person-focused pay and the advantages and disadvantages for employees of these types of programs. How do these programs vary from merit based programs?

Person-focused pay reward employees for obtaining job-related ...