Current practice with regard to short-term incentive schemes for middle managers

Abstract

Background to the study The use of pay-for-performance, and in particular the use of incentive schemes has increased dramatically since 1987 in Fortune 1000 corporations (Lawler, 2003), and in a recent survey of reward practices conducted by WorldatWork, it was reported that approximately 66% of companies in the United States use variable pay beyond their executive levels. This is an increase from 59% in 1995 (Wilson, 2003).Historically, high-performing employees could expect to receive bigger salary increases than their lower-performing peers, especially when annual merit increases were averaging higher as a result of increasing inflation, but today, it has become increasingly more difficult to differentiate between the salaries of individual employees based on high or low performance. In order to supplement these merit increases, many companies have started implementing pay-for-performance incentive schemes (Orens and Elliot, 2002).There is thus globally a trend towards implementing performance-based incentive schemes, and in particular an increase in the use of incentive schemes for employees other than executives. In South Africa, variable pay and in particular incentive schemes have been implemented successfully for executives and sales staff across organisations, whereas most often, middle managers do not reap the benefits of such incentive programmes.The focus of this study therefore was to determine what the current practice is with regard to short-term incentive schemes for middle managers, as very little empirical research has been done in this regard. Short-term incentive schemes in particular are defined as incentive schemes where the measurement period is around one year and payments are in cash e.g. profit share, gain share, commission and bonus scheme (Bussin, 2003). Commission schemes were, however, excluded from this study as they are mainly used for sales employees, and a need existed to determine what the incentive scheme practices are with regard to non-sales middle management employees.Middle managers are considered to be those employees at around the Paterson D-Band level. When looking at a traditional hierarchical organisation, middle managers are those employees below senior managerial level and above the supervisory or junior management level. The professional specialists often fall into this employee category.Motivation/rationale for the study There is a lack of empirical research and literature on the problem, and a pressing need in the market exists for this research. The reasons for focusing on middle managers are that they are often the group of employees where little emphasis is placed on the manner in which their rewards are structured. This research has aimed to address this knowledge gap with specific reference to the South African market. Literature on short-term incentive schemesThe literature on short-term incentive schemes is contradictory. There are proponents as well as sceptics to be found in the literature. Research has more often than not found that incentives do not mo...

It’s (Not) All About the Jacksons

“…In the current paper, we used a field experiment to examine short-term bonuses, a performance-based incentive plan that has gained popularity in recent years (WorldatWork, 2014b). While the use of short-term bonuses to motivate employees is commonplace, a clear understanding of the actual effects of short-term bonuses in real work environments, and of the conditions under which such incentives are most likely to improve (or hinder) productivity, is still lacking (Grigoriadis & Bussin, 2007). As the most valuable assets of organizations in the 21st century are their knowledge workers and their productivity (Drucker, 1999), such an understanding is crucial for both organizations and managers (Beer & Cannon, 2004).…”

“…While performance-based incentives come in many shapes and flavors (e.g., gain sharing, profit sharing, lump-sum bonus, and sales commission), we focus here on short-term bonuses. In general, short-term bonuses are performance-based incentives where the measurement period of performance is short-usually anytime between 1 day and a full year (Grigoriadis & Bussin, 2007). The primary purpose of such bonuses is to reward or recognize performance that has an impact on the success of the company.…”

“…In addition, in a survey aimed at understanding the best ways to reward top performers in the workplace, short-term bonuses were ranked among the top two choices by both employers and top-performing employees and as the most preferred award by professional/technical employees (Menefee & Murphy, 2004). Still, despite their popularity among companies and employees, empirical evidence on the efficacy of short-term bonuses is lacking (Grigoriadis & Bussin, 2007). To that end, we report a field experiment that examines the effectiveness of different types of short-term bonuses as well as their effect on productivity after their administration.…”

Short-term incentive schemes for hospital managers

“…There is a strong, established link between pay for performance and organisational performance (Grigoriadis & Bussin, 2007;Offstein & Gnyawali, 2005). This link, however, does not always have a positive impact (Bizjaka, Lemmonb & Naveen, 2008;Brick, Palmon & Wald, 2006), especially in healthcare, where costs are considered prohibitively high (McIntyre & Thiede, 2007).…”

“…This link, however, does not always have a positive impact (Bizjaka, Lemmonb & Naveen, 2008;Brick, Palmon & Wald, 2006), especially in healthcare, where costs are considered prohibitively high (McIntyre & Thiede, 2007). Shortterm incentives have been successfully implemented for top executives and sales personnel across companies in South Africa (Grigoriadis & Bussin, 2007), but there is no published research on short-term incentives for hospital managers within the context of South Africa. This study sought to assess the perception of private hospital managers regarding the efficacy of short-term incentives in their motivation and retention.…”