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Recognizing Employee Contribution

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Incentive programs are one of many ways organizations motivate employees. Our goal is to design an incentive program that is aligned with the company’s goals, needs, skills, and abilities. Incentive pay can be determined by merit pay and performance bonuses. Studies have found that pay-for-performance plans help achieve organizational goals and desired performance results. Merit pay is a reward in which employees receive permanent pay increases such as raises as a function of their individual performance ratings. Although it can be different across industries, some recent surveys have demonstrated that 80% to 90% of organizations use merit pay plans (Heneman & Werner, 2005) Merit raises should be fair and based on performance ratings and the biggest increase is given to the best performers. Performance bonuses are monetary rewards for performance and not rolled into base pay. Bonuses must be earned and re-earned during each performance period.
Bonuses are attractive to many organizations because the one-time cash reward links pay to performance and motivate employees. (Lawler, 1981; Lowery, Petty, & Thompson, 1996) There are several core legal requirements that will affect our employee’s benefits. These legal requirements include tax treatment of benefit, anti-discrimination laws, and accounting requirements. The federal and state governments require various forms of social insurance to protect workers from the financial hardships of being out of work. The IRS provides more favorable tax treatment of benefits classified as qualified plans. To obtain status as a qualified plan, a benefits plan must meet certain requirements. (Noe, 2014) To receive the favorable tax benefit, an organization cannot set up a retirement plan that provides benefits exclusively to the organization’s owners and top managers. (Noe, 2014) Anti-discrimination laws are laws that protect employees against discrimination in regards to race, sex, age, and disability. These laws include the Americans with Disabilities Act (ADA), Age Discrimination in Employment Act (ADEA), and Title VII of the Civil Rights Acts of 1964. Accounting Requirements requires that an organization meet the many requirements of the Financial Accounting Standards Board (FASB). These accounting requirements are intended to ensure that an organization’s financial statements are a true picture of the company’s financial status and that outsiders can understand and compare financial statements. (Noe, 2014) There are several benefits our organization is required to offer employees. These benefits include social security, unemployment insurance, and workers compensation insurance, family and medical leave, and health care. Social Security is the federal Old Age, Survivors, Disability, and Health Insurance (OASDHI) program, which combines retirement insurance, survivor’s insurance, disability insurance, hospital insurance (Medicare Part A), and supplementary medical insurance (Medicare Part B) for the elderly. (Noe, pg 403) Unemployment insurance provides payment to offset the involuntary loss of income. Workers compensation insurance that provide compensation to employees who suffer job-related injuries and illnesses. The federal government administers the workers compensation program however each state has their own laws and programs for workers compensation. Family Medical Leave Act or FMLA, requires organizations to provide as much as 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill child, spouse, or parent, for an employee’s own serious illness; or to take care of urgent needs that arise when a spouse, child, or parent in the National Guard or Reserve is called to active duty. (Noe, pg 405) The Patient Protection and Affordable Care Act passed in 2010, includes incentives and penalties for employers providing health insurance as a benefit. In addition to the required benefits, employers should provide paid leave, flexible spending accounts, retirement plans, and disability insurance. Paid Leave has several different categories; holidays, vacations, and sick leave. When we provide paid leave to staff it gives them the opportunity to spend time and enjoy family. Flexible Spending Account is a special account employee put money into and is used to pay for certain out-of-pocket health care costs. The funds on the flexible spending account are tax-free and in addition to medical; the flexible spending can be used to pay dental and vision expenses. To avoid taxation, the funds in the account must meet IRS requirements and contributions cannot exceed five thousand dollars per years and must be designated in advance. (Noe, pg 411) Disability insurance protects employees against loss of income as a result of a disability. It is important to communicate benefits information that will attract, motivate and retain employees. (Noe pg 426) Organizations must keep benefits simple and easy to understand. Employees must also have a clear understanding of the options available. There are many effective ways to communicate employee benefits such as brochures, the internet, and emails that prompt and remind. Employees should earn what they are worth because this will lead to better individual performance. Organizational incentives motivate employees to meet goals and objectives.
When incentive pay is a large portion of an employee's compensation, there are several ethical risks involved. When the incentives are high organization's risk employees being dishonest by inflating earnings. Organizations must use incentive plans to drive the behaviors expected by employees. Some employees may increase the value os the company by manipulating data. Fraud is another risk an organization must consider when are incentives pay a large portion of the income. To prevent unethical behavior organizations may obtain an independent source that can monitor earnings.

References

Desai, Ami; Kleiner, Brian . Business Journal for Entrepreneurs . 2015, Vol. 2015 Issue 3, p13-23. 11p.

Heneman, R. L., & Werner, J.M. (2005). Merit pay - linking pay to performance in a changing world (2nd Eds.). Greenwich, CT: IAP.

Lawler, E.E. (1971). Pay and managerial effectiveness: A psychological view. New York:
McGraw-Hill.

Noe, Raymond.,Hollenbeck, John, R., & Gerhart, Barry. (2014). Fundamentals of human Resource Management. (5th ed.). New York: McGraw-Hill/Irwin.

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