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Incentives and Reward Systems

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In the Magic Grafix simulation, you saw a number of possible alternatives for rewarding employees in different groups. They included the following:

Individual incentives
Gain sharing
Profit sharing
Lump sum merit awards
Spot bonuses
Group incentives

What were the "best" choices for each of the three business groups? Why? What information in your text supports the answers that provided the best results? How might you use this information to help you with the Riordan Manufacturing problem scenario?

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The BEST CHOICES for each of the three business groups were:

For the first business group the best choice was group incentives because there were teams that were working. It was not possible to identify the work done with the persons who had carried out the jobs besides there were multiple tasks being done by team members and there were multiple skills possessed by each member. However, it was possible to identify the teams that had performed well and giving the rewards to teams would motivate the teams.
The text book says that group incentives should be used to align group objectives with organizational objectives. In addition, the text book says that the group behavior should benefit the organization. Group incentives should be used to establish a performance culture. There should always be a quality rider otherwise there is a tendency for overproduction. In case of group incentive system there should be checks for safety, flexibility, schedule and quality. As the purpose in the simulation was to align group objectives to organizational objectives, the text books supports the selection of group incentives.

In case of the second business group it was neither possible to identify the individuals who had performed well nor was it possible to identify the teams that had performed the best. However, the efforts of the business group as a whole effected the performance of the company and so the best choice was profit sharing.
The text book says that profit sharing is a very expansive approach based on total operating unit performance. The text says that payments are made on pre-determined profitability target with individuals being paid an amount that is a function of the basic compensation. This system of compensation has been seen in the US auto industry. The text book supports the choice of profit sharing because the simulation required an expansive incentive and reward ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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