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Compensation plan:Factors affecting effective incentive plan

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Scenario:

You are the Director of Compensation and Benefits for Lansing-Smith Corporation, a 6-month old sales and service organization that currently has a workforce of 150 employees. You recently joined the organization when the Vice President of Operations decided to move the Compensation and Benefits function out of the Accounting Department, into a separate function. From your own observations you have identified several areas in need of review, redesign or development, including projects such as an audit of current pay plans to ensure they are aligned with federal regulations, an analysis of various pay plans to assess which plans will provide maximum benefit for Lansing-Smith, extensive job analyses to ensure a solid understanding of each position, job evaluations to determine the worth of the positions, consideration of various incentive plan designs to identify a plan that effectively drives individual and group performance to achieve production goals and research, development, communication and management training for a company-wide performance appraisal process.

You are dedicated to developing compensation and benefit practices that are motivating and empowering for employees. You are confident that with well-developed programs and practices, employees will be motivated to perform at higher levels, thereby driving overall company performance.

Details: You are a member of a national human resource management society which provides web materials for members, as well as on-line chat learning events with field experts. You have just finished reading a live chat presentation with the Martocchio, leading author on strategic compensation. Martocchio says that when designing incentive pay programs, there are 5 factors that should be considered.

Whether the plan should be based on group or individual employee performance.
The level of risk employees will be willing to accept in their overall compensation package.

Whether incentive pay should replace or compliment traditional pay.
The criteria by which performance should be judged
The time horizons for goals, long term, short term, or a combination of both.

You are asked by the chat moderator to contribute to the learning event by choosing 2 of the 5 factors, and posting chat on them. Discuss why those factors are important to consider, and the role each plays in developing effective incentive programs.

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Solution Preview

The two factors that would critically influence the compensation plan are:

1. Whether the plan should be based on group or individual employee performance
2. Criteria by which Performance should be judged

These two factors are important because every individual in the organization has to work in groups and hence wants to know how the incentive will be provided and second individual wants to the criteria against which his performance will judged so that he can accordingly work on his plans to meet the objectives of the self and the organization.

1. Whether the plan should be based on group or individual employee performance

In today's dynamic and competitive environment, organization cannot have either group or individual performance. Instead, there always need to be a combination of group and individual characteristics that should determine the compensation plan. This is because both individual knowledge and group's coordination and team work are critical in the success of any group or organization. ...

Solution Summary

choose 2 of the 5 factors influencing effective incentive program. Discuss why those factors are important to consider, and the role each plays in developing effective incentive programs.

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