Incentive Pay

Case study 7-2 talks about incentive pay. Incentive pay is a form of direct compensation where employers pay for performance beyond normal expectations to motivate employees to perform at higher levels. In structures incentives, workers understand ahead of time the precise relationship between performance and the incentive reward. When companies have an incentive pay plan, employees tend to work harder and still be satisfied and content with their job. But, when companies decide not to have an incentive pay plan, employees are not encouraged to give the best of them at the job. They will do what they are entitled to do, not going beyond their duties, which is not beneficial for the company.

A great example is what happened in case study 7-2. The company had an incentive pay rate in place that could increase the employees’ pay by 30 percent over the base pay. Employees where satisfied with this plan until the employer eliminated the incentive pay for one department. According to the agreement established, the company had the right to establish new incentive rates or to adjust existing incentive rates only under certain conditions. Those conditions included changes, modifications, or improvements made in equipment involved in an incentive pay area; new or changed standards of manufacturing; and changes in job duties of those affected by incentive pay. Other than that, Article V of the agreement established wages to be paid and specifically continued during the term of the agreement “all incentive rates” in existence at the time of the agreement.

The company decided to eliminate the incentive pay because a new mechanical device had eliminated the need for fracture tests of a furnace. The employees in the department were reduced from 6 Head Operators, 22 Attendant Carburizing, and 4 Recorder Optical Pyrometers to 3 Head Operators and 4 Attendants. The duties of Recorder Optical Pyrometers were no longer needed; therefore it was eliminated.

Question number one...