Final answer:
Incentive compensation systems are designed to align employee efforts with a company's strategic goals, including reward for effort and value contribution. Different motivational theories and incentive approaches, such as piece-rate systems and 'carrot and stick' government funding, are considered in developing an effective system. The design must consider how different incentives impact motivation and employee engagement.
Step-by-step explanation:
Guidelines for Incentive Compensation Systems : The design of an incentive compensation system is crucial for aligning employee behavior with a company's strategic goals. Contrary to rewarding individuals just for performing their duties, the system should promote activities that support successful strategy execution. Effort and compensation are two core aspects here. Individuals should be rewarded for the effort they put into their role, which can be subjective and difficult to measure, yet important for fostering a motivated workforce. Compensation should reflect not just the costs individuals incur, but also the value they bring to the organization, reinforcing desirable actions that align with strategic objectives.
A variety of incentive plans exist, including piece-rate systems, which reward output, but these can be controversial and impact motivation differently. In the context of strategic leadership, incentives may also come in the form of enhanced expressive values like solidarity and patriotism, which can boost intrinsic motivation and are especially important in fields such as public service or military settings.
Importantly, the expectation of rewards can also play a role. Unanticipated rewards can support intrinsic motivation, while expected rewards can sometimes diminish it. Recognizing this can help tailor an incentive system that maintains or enhances motivation effectively.
Davis and Moore's perspective suggests that differentiating rewards based on the importance of the work can incentivize individuals to engage more deeply with their work. Similarly, Theory X and Theory Y principles suggest that while some individuals may need a more structured and reward-punishing system (Theory X), others may thrive when given responsibility and opportunity for personal goal setting (Theory Y).
Government funding often uses a 'carrot and stick' approach to incentivize desired behaviors from state and local governments, for example. This approach can apply to incentive compensation systems within organizations as well. The overall design should take into account the dynamics of motivators for individuals and groups to effectively drive strategy execution.