Financial Incentives

Analyze peer posts and respond with analysis using one peer reviewed article supporting thoughts. 2 peer posts and each response is to be 150 words minimum. See posts below

Post 1
Organizations need to understand what motivates employees and managers in order for pay-for-performance plans to be effective. Pay-for-performance plans will not motivate all, so the introduction of a pay-for-performance model cannot be arbitrary. Firms that are weak in goal setting and short in financials may not benefit from these type plans. Also, despite the argument that these models widen the wage gap, organizations still elect to implement plans to potentially increase employee motivation, job satisfaction, and efficiency since some worker output is unsatisfactory (Gittleman & Pierce, 2015; Ledic, 2018; Theuvsen, 2004). These models serve as an organizations attempt to align pay for performance output and attract talent that is motivated by such plans (Gittleman & Pierce, 2015). Pay-for-performance models do appear to work but under certain conditions. Factors related to the organization and the employees within influence the success of pay-for-performance models. Such factors may include whether a firm is profit or non-profit and what organizations determine that specifically motivate employees (Theuvsen, 2004). The cost of maintaining pay-for-performance plans can be a deterrent to organizations which is why there is minimal use in the public sector (Georgantzis et al., 2017). When employees have awareness to how individual financial positioning can increase, organizations can capitalize upon this. Organizations can use pay-for-performance plans to motive and increase performance in employees, but the plan will only work if said employee is motivated by money (Ledic, 2018). There is a belief that pay-for-performance plans at times do not produce targeted outcomes or have produced negative results (Kovacs et al., 2020). Lastly, plans will only work if the organization can afford to pay the compensation and expend additional resources to monitor employee output (Gittleman & Pierce, 2015). The company I have worked for the past five years had a pay-for-performance plans prior to my arrival, which went to the way-side but is now being considered for return. The leadership is stellar in the organization and it makes it difficult to set apart those that outperform others. By implementing a pay-for-performance plan, those with more drive and are financially driven can be motivated to contribute more and benefit the company. I meant to obtain the name of the plan that the current CEO utilized in her past roles which she advocates has been very successful, but I will have to share that in a following post.

What does the literature tell us?

            The literature tells us that there are many theories used to understand how and why these type plans would be contemplated and used; in three articles alone theories noted included reinforcement theory, expectancy theory, equity theory or goal-setting theory, Maslow’s need hierarchy theory, Herzberg’s motivation-hygiene theory, Ryan and Deci’s self-determination theory, valence theory, microeconomic theory, institutional theory, management theory, agency theory, and crowding theory (Gittleman & Pierce, 2015; Georgantzis et al., 2017; Ledic, 2018; Theuvsen, 2004). There is not one single way to create or implement a pay-for-performance plan (Kovacs et al., 2020). Theuvsen (2004) explains two types of plans that include bonus and value-based systems. Bonus plans result in an employee attaining  goals and are typically used as short-term incentives while value-based plans place focus on managers and teams (Theuvsen, 2004). Plan concepts are developed toward individuals, teams, or an organization (Ledic, 2018). Regardless of the type of plan, whether individualized or not, plans are found to have increased job satisfaction along with financial gain, with an individualized plan having stronger effects (Ledic, 2018). Group and organizational plans are less effective because the result is dependent upon group performance versus individual performance (Ledic, 2018). Generally, the introduction of a pay-for-performance plan is thought to yield positive motivational results and improve effectiveness and efficiency (Theuvsen, 2004). However, plan implementation does not come without risk. If employees are not motivated by reward systems then the plan may not be as successful as believed. Various pay-for-performance plans exist and increase competition and can be paid out as bonuses or incentive pay (Gittleman & Pierce, 2015; Ledic, 2018). Pay can be incremental, by percentage, or based on level of output (Gittleman & Pierce, 2015). Plans should include considerations such as what is incentivized, who is incentivized, the payment attributes, the basis for payment, and gaming safeguards (Kovacs et al., 2020). These determinations must be made in order guide whether or not there are consequences when goals are not attained, if the plan applies to managers or all employees, if payments are considered as rewards or penalties, are paid often or further apart, what type formula determines the size of the payment, and if safeguards are in place to assess the process (Kovacs et al., 2020). These areas of consideration have been found to differ widely when plans were compared, even when comparison was within a single profession; this is likely due to organizations having developed the plans to fit policy objectives (Kovacs et al., 2020).

Are there specific studies that refute or support the concept?

Research reflects both scenarios where pay -for-performance supports and refutes such plans adding any value to organizations. Georgantzis (2017) explains that experts on the subject have always been divided. Pay-for-performance plans have not become overwhelmingly utilized and have only slightly grown since 1994 (Gittleman & Pierce, 2015). Theuvsens (2004) study considered the fact that the success of these plans involve psychology and extrinsic rewards, or in other words, rewards that are external and motivate people to perform such an action. Georgantzis (2017) stated managers viewed implementation of plans as a positive measure as compared to a lower level employee view. Ledic (2018) found that employees involved in pay-for-performance plans displayed more effort in performance of duties. However, as mentioned the extrinsic reward must be an actual motivator to a person since not all employees are motivated by the same thing. Ledic (2018) also found that pay-for-performance plans do matter but it is noted that although employee effort and income may increase it may come at the expense of diminished job satisfaction. Another study reflected that Caucasians and males are typically in roles that utilize pay-for-performance plans (Gittleman & Pierce, 2015). There is a belief that pay-for-performance plans overshadow the intrinsic (Georgantzis et al., 2017).

Post 2
Financial incentives are ways to encourage performance in a variety of industries whether driven by market demands in a competitive environment or influenced by compliance regulations mandated by governmental rules.  Employers and employees alike are motivated to reach goals tied to performance.  Measurable performance goals provide feedback that tracks how impactful incentive plans are.  This discussion is focused on the impact pay-for-performance incentives impact the dynamics of an organization and whether or not incentive compensation plans or beneficial to companies.  This discussion will offer an opinion on the drawbacks of incentive plans.

Maslows hierarchy of needs is a psychological perspective that asserts that there are basic levels of human needs.  As each need level is obtained individuals may advance to the next level of need in hierarchal order diagramed on a pyramid.  Maslows theory proposes when individuals physiological needs are reached, the person advances to safety, next love, and belonging, then esteem, and finally the top of the pyramid, self-actualization.  From Maslow, McClellands theory of motivation is developed which, determines individuals are motivated primarily in three ways, the need for achievement, the need for affiliation, and the need for power (Al-Nsour, 2011).  Each of these needs drives outcomes that in some way or other influence pay performance incentives.  For instance, the motivation need to achieve involves goal setting that is realistic yet challenging.  If the goal is either unrealistic or lacks a true challenge, the motivation to excel is lost hence, the goal that is set may not be achieved as motivation declines. According to McClelland, the need for affiliation considers belonging to a group where one feels accepted and even liked by others (Al-Nsour, 2011).  This is a motivating factor that supports the need for human interaction and relationship (Al-Nsour, 2011).  In this dynamic, groupthink can prevail that can cause goals to be met and lead to the achievement of pay performance.  Alternatively, groupthink can lead to the failure of achieving the goals, as the group is focused single-mindedly and may overlook other measures that could produce a better outcome.  The third way that motivates achievement is the need for power and influence over others that results in winning (Al-Nsour, 2011).  The need for power may exhibit as personal power or institutional power.  Personal power may be considered by others within a workgroup as less favorable as it is inspired by intrinsic personal values whereas, institutional power insists upon a team winning effort.  Institutional power drives others to excellence and is not so centrally focused on a single individual.

There are arguments for and against incentive plans and merit pay.  Generally, performance incentives provide motivation for improving task-oriented performance.  Bailey et al., (1998)  recognize piece-rate contingency as a concept that improves performance among workers.  Bonner and Sprinkle (2002) agree, affirming monetary incentives increases efforts which in turn increases performance.  The literature goes on to note the degree of task complexity can lead to a deeper level of engagement by an individual but also threatens cohesiveness among teams if each member of the group does not equally embrace task complexity mutually.  Further, increases in task complexity can cause a decrease in the positive effect incentives are designed to have on performance by attenuating the incentiveseffort relation or by attenuating the effortperformance relation according to Bonner and Sprinkle (2002).  The upside to performance incentives and the downside to performance incentive is equally identified in the literature. 

Peacock et al., (2007) brings attention to Pearce (1987) pointing out the issues surrounding pay for performance.  The idea that within an organization individuals who are compensated for performance operate as a single entity is a misconception.  The reality is individuals within an organization are comprised of a collective organizational membership and therefore operate as a group or team (Peacock et al., 2007).  Moreover, the work task is often complex and requires collaboration that involves others that make up the team.  Hence, when individuals respond contrarily to the team dynamic in a self-centered way, the team is hurt and ultimately the organization is hurt.  The primary goal of the company to improve overall performance.  The organizations intrinsic value is defaulted to fulfilling an incentive plan for an individual or even a few of the individuals on the team, damaging the companys reputation.  This outcome testifies to the folly of incentive plans and pay matrix that does not produce the ultimate desired outcome.

Dramatizing the distinction of individual incentives and group incentives Peacock et al., (2007) use the game of Charades.  Individuals are organized into groups where one player within the group aims for an individual incentive, while the rest of the team play for a group reward (Peacock et al., 2007).  What was meant as an exercise of fun revealed the unbalance of individual incentive reward compared to the shared incentive reward among the group.  The individual reward was perceived as more advantageous than the shared group reward, concluding there is an emotional divide between individual incentives and group incentives.  This can be disruptive and destructive to organizational dynamics. 

Organizations truly face the challenge of remaining competitive and are constantly seeking ways to improve performance.  Balancing efficiency and peak performance is a daunting task.  Incentive plans may be well meaning but do not always obtain the desired outcome.  The literature provides evidence that suggests performance incentives can motivate individual performance but also can threaten group performance.  While on the one hand individuals may be motivated by personal power it could be detrimental to the institutional power of the group.  As such, organizations should consider the literature findings and customize incentive plans that have a group incentive only.  This suggestion is supported by theory which indicates monetary incentives motivate improved performance.  The optimal design is customized incentive plans.  There is no one size fits all just as no one employee is alike.  Organizational leaders must embrace the challenge of what works best for a given task.  By identifying what the organizational goal is and incentivizing according to the goal organizational leaders can avoid losing focus.