Module 7 Discussion PDF

Preview

Summary

Essay...

Description

MODULE 7 DISCUSSION W. Edwards Deming often referred to as the leading quality guru in the United States, and psychologist Alfie Kohn supports the idea that incentive pay is not a motivator for individuals to do a good job. Yet economists argue that incentive compensation does work and as economist George Baker notes in his 1993 article in the Harvard Business Review titled "Rethinking Rewards," "The problem is not that incentives cannot work but that they work too well." What does Baker mean? They Work Too Well Baker means, it is not that incentive plans do not work well; it is that they can sometimes work too well in motivating unintended consequences. Kohn’s study of the inadvertent and unwelcome side effects of many incentive strategies is entirely appropriate; plans that deliver incentives for the wrong behavior will produce the wrong results. “Enron, Merrill Lynch, and Salomon Brothers, neither of these firms had structured organizational plans to participate in unethical conduct. Instead, their ethical problems resulted from ineffectively monitoring the actions of individuals within the company, which gave them too broad of decision powers. These are instances of challenges regarding rewards inside organizations” (Brickley, Smith, & Zimmerman, 2016, p. 702). Baker (1993) indicated in his article that rewards often hinder the very mechanisms they seek to improve, according to multiple studies in labs, offices, schools, and other environments. If we look at the unsuccessful compensation program of Wells Fargo, the plan was designed with specific objectives in mind. The plan was based on participants doing as expected by the planners. Unfortunately, Wells omitted critical but simple components which would have helped to avoid dishonesty. “From 2017 and 2018, Wells Fargo has confessed to several transgressions: opening millions of accounts that customers did not want or ask for; inappropriately repossessing thousands of cars, including from

certain military members; wrongly foreclosing hundreds of homeowners; and overestimating the fees charged to clients” (Merle, 2019). “The big French bank, Société Générale, announced losses of more than $7 billion due to potentially illegal trading in securities by one of its employees. After their substantial subprime failures, JPMorgan Chase rescued Bear Stearns, a top-tier investment bank. Washington Mutual and Lehman Brothers were linked to the "top corporate scandals of all time" list” (Brickley et al., 2016 p. vi). These businesses did not fail merely because of lax management or allegations of corruption at the top. The excessive focus on earnings growth and individual autonomy, combined with a disturbing lack of the standard organizational checks and balances, turned the company culture from one that celebrated aggressive strategy to one that focused overwhelmingly on dishonest corner-cutting. “Critics point out that false accounting at various companies such as WorldCom, Enron, Andersen, etc. was driven in part by the willingness of top executives to hold stock prices briefly up until when using their stock options” (Brickley et al., 2016 p. 598). In the end, the new, young, ambitious managers were allowed too much latitude without any of the essential checks to mitigate deficiencies. These were businesses that just made a lot of adverse decisions in firms that were not so great from the beginning. The compensation plans did not account for fraud or dishonesty. It did not say, cook the books, give clients misleading stock information, falsify reports, nor did it say pretend to be who you are not. The First Rewards While there is not a specific event that contributes to the birth of recognition at work, specific early examples of compensation can be identified at the first Olympic Games in ancient Greece. Many prizes were given to the Olympic event winners, including laurel (or olive) leaf crowns, cows, and bronze tripods. These champions were also honored with statues and stone engravings of their victories in

host cities. In 1896, the Gold medals were part of modern athletics. What is more, what is real in ancient Greece is still true today; it is a tremendous honor for athletes and others to participate, to be honored and recognized for their accomplishments. “The Nobel Prize for Economics (or, more precisely, The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel) is the world’s greatest respected award for contributions to the field of economics. It is bestowed annually by the Royal Swedish Academy of Sciences. The prize consists of a gold medal, a diploma bearing a citation, and a sum of money— $1.3 million in recent years” (Brickley et al., 2016, p. 298).

Discuss the importance of a well-developed compensation plan in attracting and retaining good employees and how to keep those plans from "working too well." Attracting High-Performance Individuals There is intense competition to keep key employees. Executives at the senior level and HR teams are spending large amounts of time, attention, and currency trying to determine how to keep good employees from leaving. Often it is said that the key to success in an organization is its people. Investing in what is generally known as human wealth is a proven way to boost an organization's market capitalization. “Studies and research have shown that the major core incentives that continue to attract and keep employees are healthcare, retirement, and versatility in the work-life balance. It can make a significant difference to be innovative agile and committed to hiring employees in the work-place” (Bender; ContacosSawyer, Thomas, 2013) Employers must first acknowledge that money is not going to do it all by itself. High-performing employees seek something more than high wages. The standard compensation plan for workers should include a total package of incentives, acknowledgment as well as a positive workplace. Several of the components are "satisfiers," which enable a business to attract and

retain workers, including wages, flextime, and education. Other reward features are the "motivators," such as bonuses promotions, challenges, and opportunities. A well-designed strategy will also have provisions for longterm and short-term incentives. Now, more and more companies are trying to change the way they see and pay their staff. It is a shift away from the traditional "cost-of-doing-business" model. Productive companies are implementing innovative systems that direct workers to enhance their business performance and thank them for their efforts. Sadly, most companies and employers are still not ready to make such adjustments (Bender, Contacos-Sawyer, Thomas, 2013). “The secret to enticing and retaining the best and the brightest to the company is to use the "absolute compensation strategy.” A company that takes the time to tailor the total compensation package thoroughly would turn individual workers into high-performing and dedicated employees” (Oak, Catherine, 2004). Financial incentives in any firm are linked to appreciate behavior and retention of employees. Five elements make up overall incentives. The incentives are pay, income, work-life, success and appreciation, development opportunities, and professions. Benefits play a significant role in the method of

total

compensation. Fringe

benefits

include

an

indirect

form

of

compensation to improve the quality of employees ' personal and work lives. “A wide range of fringe benefits exists and what is offered varies from one employer to another, but the most common benefits include life, disability and

health

insurance

bundles;

tuition

reimbursement

or

education

assistance; fitness center access or discounts; employee meals and cafeteria plans; dependent care assistance; and retirement plan contributions” (Hoole, 2019). All bonuses and incentives come under the heading of "competitive pay, but they are not the same thing. The significant difference is in orientation; while rewards (bonus) continue to reward past actions, incentives target at promoting future outcomes.

Moreover, in a very trivial sense, employers provide a payout (bonus) for a job well done, and they motivate them to do a job better. Because of this, bonuses are not always connected to a specific plan or target, but there are always rewards. “Decision rights are granted to employees

through

formal

and

informal

job

descriptions,

whereas

performance evaluations and rewards are specified in formal and informal compensation contracts” (Brickley et al., 2016, p. 358). Employers tend to overlook their ability to leverage their compensation packages even though they seemed to recognize how issues such as salaries and

wages,

career

opportunities,

and

corporate

culture

affect

the

commitment feelings of workers. (SHRM, March 2012). Providing benefits that correlate with the trends, expectations, and priorities of a company will be a secret to success in helping achieve goals and objectives. “Nonetheless, certain employees receive a significant portion of their compensation in the form of fringe benefits — compensation that is either in kind or deferred. Types of in-kind benefits include health insurance and business recreation center access, where the individual earns an insurance policy or service instead of cash. Sources of deferred compensation cover contributions to retirement plans and social security” (Brickley et al., 2016, p. 455). Salary may be critical for recruiting workers, but incentives continue to play more of a significant role in keeping employees. Employees are increasingly worried about balancing their job and family lives. A versatile compensation package is a crucial benefit tool for longevity and employee morale. It will draw workforce generation who enjoy more significant selections in all areas of their lives. “The promise of a long-term relationship with a company offers the

employees with strong motivation

the

chance

to

work on behalf of their employers” (Brickley et al., 2016, p. 448). If they had to choose, a new survey shows Americans now would much rather have a life outside the workplace than a high paycheck. More Americans will choose a better work-life balance instead of more income, according to Prudential's Pulse of the American Worker poll conducted by

Morning Consult and published by Prudential. However, nearly 1 in 4 employees will likely take a pay cut instead of more time off. "Top-performing businesses are more inclined to pay financial rewards to high-performing workers. They surpassed traditional organizations in all financial rewards, including goal-based compensation (35% vs. 28%) and higher base pay increases (58% vs. 54%)" (Patterson, 2017). Employers should offer employees a working environment that provides stability and flexibility to allow for work and life balance. Management will have to assess ways to deliver this sought of versatility and flexibility in the workforce realistically. Tradition has it, for instance, that the workers work in an office with specified working hours. Could the business compensate for modifications, such as 4-day workweeks, two days a week at home, or job sharing? Flexible working hours have become a popular tool for attracting and retaining good employees. Employers should honor and compensate workers with non-cash awards. Such honors are a compelling way to bolster the standards of the organization. These can be a highimpact, low-cost part of the total compensation package. For starters, special awards, such as a parking space for a month, are given to those workers who provide outstanding or creative customer satisfaction. “Establish a process which integrates realistic, short-term goals. Offering incentives that can be earned throughout the year, reflects the positive influence connected to the annual awards being distributed. Such honors enable staff to start making the best possible contributions” (Branch, 2011). Another approach would be having members or their colleagues to nominate the workers. “Singling out role models or heroes for special awards is another way of communicating the values of the company” (Brickley et al., 2016, p. 709). Once the essential ingredients of the compensation have been identified, the organization can then look at sophisticated tools for attracting and retaining staff; such as profit sharing, phantom stock, and stock appreciation

rights,

deferred

compensation,

split-dollar

life

policies,

Employee Stock Ownership Plans (ESOPs), and stock equity. Throughout

the late 1990s, the use of stock options to compensate executives and staff continued to increase throughout North America. “According to a study of Fortune 200 firms, securities reserved for equity compensation programs more than doubled in the 1990s, which by the end of the decade contributed to 13 percent of all unpaid stocks” (Brickley et al., 2016, p. 454).

Conclusion An ethical principle for all companies to adopt is that employers have to be prepared to pay excellent bonuses if they want excellent results. Execution of a total compensation program will inspire workers to boost not only their efficiency but also the performance of the company.

References Baker, George. (2014). Rethinking rewards.” Harvard Business Review, 1 Aug. 2014, hbr.org/1993/11/rethinking-rewards. Bender, Marian; Contacos-Sawyer, Jonna; Thomas, Brennan. (2013). Benefits strategies for attracting and retaining employees, Competition Forum; Vol. 11, Iss. 2, 165-169, Indiana. Branch, Demetrice. (2011). Employee motivation, recognition, rewards, and retention: Kicking it up a notch! CPA Practice Management Forum; Riverwoods Vol. 7, Iss. 11, (Nov 2011): 5-7. Brickley, J., Smith, C., & Zimmerman, J. (2016). Managerial economics and organizational architecture (6th ed.). New York, NY: McGraw Hill/Irwin. Hoole, Jared. (2019). What are some examples of common fringe benefits? Weblog post. Investopedia Stock Analysis [BLOG], New York: Newstex. Merle, Renee. (2019) Wells Fargo CEO faces bipartisan scolding, defends bank’s reputation, The Washington Post Online, retrieved February 13, 2020, from https://www.washingtonpost.com/business/2019/03/12/wellsfargo-ceo-faces-bipartisan-scolding-defends-banks-reputation/.

Mitchell, Terence R; Holtom, Brooks C; Lee, Thomas W; Graske, Ted. (2001). How to keep your best employees: Developing an effective retention policy / Executive commentary. The Academy of Management Executive; vol. 15, Iss. 4, 96-109, Briarcliff Manor. Oak, Catherine. (2004). Ten ways to attract and retain great employees. Insurance Journal, 12 Jan. 2004, retrieved Feb 13, 2020, from insurancejournal.com/magazines/magmindyourbiz/2003/07/07/30612.htm. Patterson, Rita. (2017). The 5 elements of a good incentive plan Compensation Strategy, Modernizing Compensation, retrieved February 13, 2020, from https://www.payscale.com/compensationtoday/2017/09/5-elements-good-incentive-plan. SHRM (2011, July). How to design an employee benefits program. Retrieved February 12, 2020. from http://www.shrm.org/TemplatesTools/HowtoGuides/Pages/HowtoDesigna nEmployeeBenefitsProgram.aspx. SHRM (2011, December). 40% don't understand their benefit options; Web -Based tools can help. Retrieved February 11, 2020, from http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/DontUndersta nd.aspx....