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Incentive Plans Essay

857 words - 4 pages

Incentive plans can be one method of encouraging certain behavior within an organization. Healthways has an incentive program which is pay for organizational performance. According to Noe, et al, an effective performance plan should be linked to an organizations goal and employees should believe they can meet performance standards (Noe, Hollenbeck, Gerhart, & Wright, 2004).Incentives linked to profits and stock prices have a degree of risk for the employee. Profits and stock prices can fluctuate and in doing so, can effect the incentive to the employee. Incentive plans linked to profits are "likely to be most effective in organizations that emphasize growth and innovation" (Noe, et al, ...view middle of the document...

The risk for the company can be that the employees become too focused on one objective which is tied to the incentive instead of the entire overall plan. The employee may become disenchanted by the plan and not put forth the required effort. To deter this, an organization must set goals which are obtainable, equip the employees for success to reach the objectives, the employees must feel the reward system is fair, and the organization should have an alternate plan should the employees ignore other goals for the rewarded goals.Stock options are another incentive plan. Stock options can be very attractive to the employees as the company will offer company stock at a fixed price. If the market price of the company stock is higher than the options price, the employee can exercise their options and profit. The downside of stock options for the employee is if the company stock price drops below the option price, the employee will gain no benefit from the incentive.Loving what you do is a more powerful motivator than money or any other goody. No surprise there. What is surprising is that goodies actually undermine personal motivation. The more an executive gets employees to think about what they will earn for doing their jobs well, the less interested they will be in what they are doing. Edward Deci, a University of Rochester psychologist, did pioneering studies on this...

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