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The administration of an incentive system can be complex. As with any control system, standards have to be established and results must be measured. For many jobs, the standards and measures are too imprecise or costly to develop. This means that the incentive system may result in inequities. For example, sometimes workers make more money than do their supervisors, who are on salary~Or employees may not achieve the standard because of uncontrollable forces such as machine breakdowns and other work delays.

Unions often resist incentive systems because they prefer seniority-based reards ‘and fear that increased productivity may mean layoffs among their members. They also worry that management will later raise the standard, and employees will have to work harder in the future for the same pay. This fear of a speedup often leads to peer pressure against anyone who exceeds the group’s output norms. The advantages of the incentive system are essentially lost when peer pressu~ restricts output. .

Who should compute the payout? Should the payout be included with the regular paycheck, or should it be a separate payment? Should payments be made frequently to quickly relate performance to pay, or should payouts be larger and less frequent? These and other questions must be answered in designing nontraditional plans. The answers depend on the purpose, eligibility, coverage, and payout standards for each form of nonstandard compensation. When employees can estimate the additional income from their work effort or results-for example, when a real estate agent can estimate a sales commission- greater confidence exists that the payout is correct. Including the extra income in the regular paycheck may dilute its impact because it is not separated from regular wages or salaries and is diminished by payroll deductions such as taxes. Payouts should follow performance as quickly as is administratively feasible. Here the goal is quick reinforcement. However, daily or weekly payouts may be so small that they provide little incentive for extra effort. ‘

Posted on September 4, 2014 in Incentives and Gain sharing

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