Group Incentives

Introduction

Sometimes managers need to decide what kind of remuneration they have to use in order to motivate their subordinates to work harder, smarter or faster. As in my case I'm willing to work faster or harder if I know there is something I can gain with my behaviour and these thoughts almost everyone has. As their decision should be wise and fact based they need to know how the incentives they will use influence the motivation of the employees and when to use them. Mangers can decide whether to use individual or group incentives. If the individual incentive plans can't be implemented the group incentive plans take their place and vice versa. In this paper I would like to focus on group incentives and try to explain how the group incentives can influence employee motivation and I hope I would come to some conclusion in the end.

What are the group incentives?

At first we have to define what the group incentives are to better understand their influence on motivation. Group incentives are incentives paid to group of employees. But now there can arise a question why should be groups and not individuals rewarded. There can be more than one answer but all of them are really easy to get. The basic idea is that not all the employees can be remunerated following the individual incentive plans. If this situation occurs group incentives plans are implemented instead. Group incentives are used when it is difficult to measure each individual employee output, and/or when team work is important. Nevertheless sometimes output is measurable but impractical or too costly to measure. Simply the performance of unit consisting of more employees or the whole company matters and is the reason of pay increase or bonuses. Nowadays there are many group plans used in the real practise but generally their basements are almost the same in all types of these plans. Most of the group plans are based on a monetary performance standard, such as the sharing of profits, the production value added, the value of sales, or the cost savings made, rather than on a quantity production performance standard as is typical of individual incentives. There are various types of group incentives and so the influence on employee motivation can vary over them. It would be wiser to look at these plans separately, one by one, how they influence employee motivation.

Types of group incentives

There many types of group incentive plans used around the world. I would focus only on the most often used among the managers. To the common group incentives plans belong: gainsharing, profit sharing and stock options. Despite the fact that all of these plans fall in the same category of incentive plans they differ in many ways nevertheless one characteristic they have in common. All of them are pay-for-performance plans and are not changing or influencing the base pay but the variable pay. What does it mean pay-for-performance? These plans are paying increases in variable pay or bonuses depending on improved employee performance. In the next part I would like to look at the influence on employee motivation of these group incentive plans separately.

Gainsharing

Gainsharing is a group incentive plan and as the name suggests, employees share in the gains in these types of group incentive plans. The employees share the saved costs, e. g. of labour, improved production, of reduced spoilage and scrap or savings on expenses such as materials and equipment. However, the definition is usually made up of three components: The philosophy of cooperation, the involvement system and the financial bonus. Gainsharing is a group incentive plan and because of this the cooperation of employees is crucial as well as the communication between superiors and their subordinates. The second component is vital to have if implementing the gainsharing should be successful. The employees suggest new improvements and so they are involved in the gainsharing system. The last component the financial bonus is determined by a calculation that measures the difference between expected costs and actual costs during the bonus period. Gainsharing could be also considered as win-win situation because employees as well as companies are profiting from this incentive plan. Employees in bonus pay and companies in reduced costs or better performance. The original and best-know gainsharing plan is the Scanlon plan. Other gainsharing plans include Improshare and the Rucker Plan. There are of course plenty of other gainsharing plans, mostly tailored to the special needs the organisation or company has. Some need to cut costs, others need improvement elsewhere, and not every organisation has the same needs.

Gainsharing and motivation

If gainsharing as an incentive plan weren't employee motivating it wouldn't be implemented or used by managers. But this motivation effect needs to be supported by some evidence or have the fundamentals in the theories of motivation. Let's have a look at gainsharing in terms of motivation theories we know or we can apply on this group incentive plan. The best applicable motivation theory is the expectancy theory. At first we need to know what is this theory saying in general. It is the theory that an employee motivation increases when he values a particular outcome highly and when he feels a reasonably good chance of achieving the desired goal. All of these can lead to higher employee motivation only under certain conditions. Important rewards must be perceived to be tied in a timely fashion to effective performance. In short, organisations get the kind of behaviour that leads to the rewards their employees value. In other words employees or individuals believe that if they will behave in certain, desired way, they will earn or gain certain things. Let's apply this on gainsharing. If employees see and believe that if they will improve the production time or cut the production costs they would get extra money in amount of this savings, most likely they would cut the costs or improve the production time-act in the certain, desired way. The used incentive must meet some want, desire, or need that the employee has. In other words, for an incentive to be effective, it must satisfy some psychological, social, or economic need that the employee is anxious to fulfil. This refers in some aspects to Maslow's Need Hierarchy Theory that says that an unsatisfied need is the main reason of psychological discomfort. Following this theory needs suppose to be satisfied and until they are unsatisfied the employee or individual is willing to try or