Incentive Pay

Many businesses have adopted an incentive pay or pay-for-performance approach, because of its links to increased productivity. More specifically, studies show nearly 80% of U.S. corporations rank linking rewards to performance as an important organizational objective. The increase in use of incentive pay may be attributed to the expected motivational impacts; that is, research has found that pay contingent on performance results in greater productivity and retention than when that contingency is not present. Organizations have many choices for reward programs, including piece rate pay, commissions, bonuses, skill-based pay, and merit pay. Organizations can also choose to implement programs at an individual or group level. Individual performance should be rewarded when it is identifiable and measurable; otherwise, group performance is important in situations requiring employee cooperation and coordination. Although these programs seem straightforward, there are difficulties in implementing incentive pay programs. To be specific, the pay system should take into consideration the employees’ task and activities that can be controlled by the employee. Second, the system should incorporate performance standards that can be measured accurately and with precision. Third, the reward needs to be significant. Studies show that approximately a 10% increase over base salary is needed to motivate employees. Finally, managers should not limit incentives to monetary rewards. Other rewards that may be important to health care personnel include amount of patient contact, research and grant funding, health benefits, personal days, and continuing education assistance.