In light of unsatisfactory performance in GrowCo’s design engineering department, the company approved a short-term incentive compensation plan. The plan is aimed at improving engineers’ performance by rewarding them with an annual pay bonus based on three key factors: unexcused absences, adherence to schedule deadlines, and drawing quality. This paper will examine GrowCo’s short-term incentive plan, discuss any issues found in it, and offer suggestions based on this discussion.
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Examining GrowCo’s short-term incentive compensation plan for its engineers, one can surmise that it may have issues in its design. It is mostly consistent with most core principles of individual incentive plans: its results are measurable and observable. A 20% increase in salary is significant enough to be valued, and the incentive pay is proportional to performance. However, one goal in may not be perceived as achievable by the employees, presenting a critical issue with the plan.
The critical issue lies with the “adherence to schedule” criterion. Engineers claim that problems with it are caused by last-minute changes. Since these changes are outside of the engineers’ control, they may perceive the incentive target as unachievable, and thus, unfair, negatively affecting employee motivation (Sung, Choi, & Kang, 2015; Wenzel, Krause, & Vogel, 2017). Therefore, it may be prudent to investigate the claims before implementing this criterion. However, the evaluation itself can serve as an instrument in the investigation: if adherence to schedule does not increase, then last-minute changes are more likely to be responsible. A possible compromise is evaluating this criterion, but assigning it a significantly lower weight until a connection, or lack thereof, is established.
An example was provided, where an engineer’s evaluation criteria for the incentive plan. In the given example, the engineer’s incentive payout would total $16400, calculated as follows:
For unexcused absences, target performance is attained: 80000 * (0.2 * 0.3) = 4800
For adherence to schedule, a value of 90% is achieved:
%; 80000 * (0.2 * 0.4 * 1.25) = 8000
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For drawing quality, performance is 92.5%:
%; 80000 * (0.2 * 0.3 * 0.75) = 3600
4800+8000+3600 = 16400.
Sung, S. Y., Choi, J. N., & Kang, S.-C. (2015). Incentive pay and firm performance: Moderating roles of procedural justice climate and environmental turbulence. Human Resource Management, 56(2), 287-305. Web.
Wenzel, A.-K., Krause, T. A., & Vogel, D. (2017). Making performance pay work: The impact of transparency, participation, and fairness on controlling perception and intrinsic motivation. Review of Public Personnel Administration, 39(2), 232-255. Web.