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Incentives for Managers

In terms of paying incentives, companies prefer the combination of salary and bonuses. The salary is fixed and the bonuses are depended upon responsibility center’s net income. However, the income-based compensation is said to be the cause of trouble within firms. The manager may engage in unethical practice, such as postponing needed maintenance to boost income. On the other hand, managers may also postpone revenue if the maximum bonus offered this period has been achieved. Recent development indicated that for high level managers, non-cash compensation is as important as cash compensation (Hansen, 2003).

If a well motivated manager reflects enhanced strategic decision, then a well motivated labor reflects good productivity. In the lowest level of employees, financial reward holds a great deal of importance. A workers wage is almost identical to his/her motivation to do the job. Because all wages are paid for work performed, an element of incentive is present in all wage plans. The primary purpose of all incentive wage plans is to induce workers to produce more to earn higher wage and at the same time reduce unit costs. The simplest form of an incentive wage plan is called the Straight Piecework Plan.

In a straight piecework plan, a

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worker is guaranteed a base pay rate. However, if the worker able to exceeds the standard quantity of goods produced, then and bonus is provided for each of the excess. This type of wage plans is effective when a worker has control over his/her own individual work-pace. However, if the work is machine pace, the wage plan will be inappropriate. There is another wage plan that was developed in spite of the straight piecework plan. It is called the One Hundred Percent Bonus Plan. Within this plan, workers are given a base rate and then, the workers are measured for his/her working efficiency ratio.

The base rate is then multiplied by the efficiency ratio to produce the actual rate. If the worker produces more within the same standard hours, then his/her efficiency ratio will increase and his/her actual rate will guarantee him/her a larger wage (Hammer, 1994). The latest development of labor wage plan is the One Hundred Percent Group Bonus Plan. It is an exact duplicate of the One Hundred percent Bonus Plan, only applied within group worker and not individuals. The Japanese has used it with great success, and it was the answer to productivity problems that has plagued US industries (Hammer, 1994).

The question implied within this discussion is”… as corporations understand the impact of compensation to employees’ performance, what kind of compensation strategy produces the greatest positive impacts towards the corporations? ” There are various choices of strategy, individual incentives, team incentives, cash incentives, non-cash incentives, etc. In order to satisfy employees and employers, a company should employ compensation strategy that addresses the specific needs of our employees, other stakeholders, and take into account several factors such as ethical issues, government act and many others.


Cho, Chang Hyun. (n. d. ), ‘Classification and Compensation Strategy’, [Online] Retrieved March 5, 2006, Available at: http://unpan1. un. org/intradoc/groups/public/documents/APCITY/UNPAN014203. pdf#search=’compensation%20strategies’ ‘Employee Motivation in the Workplace’, 2005, [Online] Retrieved March 4, 2006, Available at: http://www. accel-team. com/human_resources/search> Hammer, Lawrence. , Carter, William K. , & Usry, Milton F. 1994, Cost Accounting, South Western Publishing, Ohio: Hansen, Don R. , & Mowen, Maryanne M. 2003, Management Accounting, SouthWestern Publishing, Ohio

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