Question 1: Factors That Ensure Success of a Variable Pay Plan
Variable pay plans are employed extensively by organizations because they improve productivity and aid in acquisition and retention of talent. Also, variable pay enhances service delivery and raises employee morale (Stroh et al. 757). These positive impacts are only realized if the plan is properly integrated into an organization. For a variable pay plan to be successful, several factors must be put into consideration. Firstly, an organization must have sufficient financial resources to pay the highly qualified and motivated members of staff. Secondly, there should be a clear and detailed plan outlining the particulars of the payment schedule (Aggarwal and Rajesh 1614). In addition, the plan should be communicated to all employees to ensure they understand the factors that will affect their remuneration. Thirdly, the plan should have a method of quantifying performance such as projects completed, work hours, or amount of revenue generated. Fourthly, the remuneration strategy should be linked or equated to performance results and acceptable to all parties (Stroh et al. 766). Other factors that influence the success of variable pay include a clear distinction of incentives from basic pay and alignment with the organization’s culture. Finally and most importantly, the plan should induce the desired results from the workforce.
Question 2: Selecting Performance Incentives
The choice of awarding team members equal incentives or performance-based remuneration depends on organization culture that a firm wishes to cultivate (Gerhart et al. 63). For instance, equal incentives are preferred when a company wishes to create strong teams or when it is not possible to quantify the performance of individual team members. On the other hand, individual incentives are pegged to performance if the management deems teamwork to be of little value to the organization, or when individual performance is easily assessable (Gerhart et al. 71). In my opinion, incentives should be aligned with individual performance due to several reasons. Firstly, they promote independence among employees. Secondly, they aid in retention of talented workers because compensation is equated to effort and hence staffers feel that they earn what they deserve. Finally, variable pay encourages hard work.
Aggarwal, Rajesh, and Andrew Samwick. “Performance Incentives Within Firms: The Effect of Managerial Responsibility.” The Journal of Finance, vol. 58, no. 4, 2003, pp. 1613-1650.
Gerhart, Barry, et al. Human Resource Management: Gaining a Competitive Advantage. McGraw-Hill Education, 2015.
Stroh, Linda K., et al. “Agency Theory and Variable Pay Compensation Strategies.” Academy of Management Journal, vol. 39, no. 3, 1996, pp.751-767.