Incentive Plans Essay

843 words - 3 pages

Variable pay incentive compensation can be a powerful tool for driving business success. Accurately measuring and rewarding performance is key to driving the desired behavior from top management. A well-structured compensation plan communicates corporate objectives, while a poorly structured compensation program can actually impel and work against corporate goals. Are you getting the most out of your plan?Incentive PlansDouglas Furniture's incentive plan has been established to provide financial incentives for those key individuals who, by virtue of their position, have a significant impact on the financial performance of the Company. It has been created with the belief that those executives who are directly responsible for managing a major profit & loss or cost center, or a strategic function, and who materially contribute to growth in earnings and shareholder value should be eligible to participate in a plan, which provides for material cash incentive awards based upon individual and corporate objectives, paid out annually with a maximum potential of 65% of the individuals salary.Eligible participants will work with the CEO to establish performance goals and objectives. These goals include specific objectives for individual/departmental financial performance and certain strategic/tactical assignments. Each executive's individual financial and strategic/tactical goals should map closely to the priorities outlined in the Company's Annual Business Plan. Variable compensation plans such as performance-based incentives, spot awards, team-based bonuses, and gain-sharing plans are excellent tools to leverage human capital at performance levels that outpace competition. The integration of base salary plans, incentive pay plans and competitive benefits is vital in rewarding high-performing individuals.Incentive plans can be either informal or formal and at Douglas Furniture, we use an informal plan. If the plan is informal, there may be no written documentation and no defined funding formula or allocation guidelines. This type of plan is most appropriate for small companies with few employees, which fits my organization very well. On the other hand, if a company were medium or large-sized, an informal plan would probably be ineffective. This larger type of organization would probably require a formal plan containing the following elements:•A formal plan must be written•contain a predetermined funding formula•or include predetermined allocation guidelinesIncentive plans have similar purposes or goals. The authors of the text Fundamentals of Human Resource Management (2004) state that for incentive pay to motivate employees to contribute to the organization's success, the pay plans must be well designed. First, try to stimulate...

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