Question

12-1. Explain how you would apply four motivation theories in formulating an incentive plan.

12-2. Discuss the main incentives for individual employees.

12-3. Discuss the pros and cons of commissions versus straight pay for salespeople.

Answer 1

12.1 -

a - Herzberg Theory - Frederick Herzberg explained the best way to motivate someone is to organize his/her job in a way that it is challenging and provide feedback which meets the higher level needs of the employee. Hence, Incentives can be decided on whether the job is challenging i.e., Challenging tasks can be incentivized. He also explains that working conditions, salary and incentives work as the lower level need of the employee.

b- Edward Deci's Theory - The psychologist identifies the extrinsic rewards as detracting factor from a person's intrinsic motivation. It can be used to design incentives on the basis that a very high reward may lead to detraction in employee's work.

c - Vroom's Expectancy Theory - Victor Vroom's expectancy theory advocates that the motivation a person has to do the work depends on the expectancy that the work can be done, instrumentality, that connects the reward on successful completion and valence, which shows the perceived value of the reward to the employee.

By understanding the last two terms, we can design the incentive system which increases the perceived value. In other words, higher level of needs are completed.

d. B. F. Skinner's Theory - This theory advocates the behavior modification through rewards and punishments. It suggests that we should design the incentives, rewards and punishments in order to change certain behavior of the workforce. Example - Firing for non-professionalism will keep employees behavior as professional as possible.

12.2 -

There are basically two main incentives for individual employees:

1. Piece rate system - This is one of the oldest and most used type of incentive system which suggests to pay specified amount to employees on the basis of number of units produced by the employee.

Straight Piece rate system - Multiplying the number of pieces produced to the unit rate reward for one piece.

Standard Hour Plan - It provides the rewards as per the proportion of the performance

2. Merit Pay System - It suggests the increase/ decrease in the salary of any individual employee on the basis of his/her individual performance in the organization. There are basically two adaptations to it:

One is to award merit in lump sum once a year and no increase in salary. And other is to increase both.

12 - 3.

Pros for Straight salary - It is simple to switch territories or to reassign salespeople. It also fosters loyalty.

Cons for Straight Salary - De-motivation of high performing employees and restriction of sales.

Pros for Commissions - It attracts the high performing employees or salespeople who perceive that efforts leads to rewards.

Cons for commissions - Salespeople tend to neglect the non-selling duties or maintain small accounts which pay them less commissions compared to those in others. It will refrain them for pushing hard to sell items.