Incentive systems develop and are embedded in the structure of an organization.
ID: 448125 • Letter: I
Question
Incentive systems develop and are embedded in the structure of an organization. The design of incentive systems needs to account for the ethical dimension. When incentive systems do not consider the ethical dimensions, they can act like a trap. Employees earn additional pay through an incentive that is often tied to specific criteria associated with financial performance. When employees pursue the incentives, they can find themselves trapped in an unethical dilemma. Issues often arise when the incentive system creates a conflict of interest for the employee or manager. Incentive system design is completely under the control of the organization. There is a need for companies to reconcile the need for organizations to maximize business profits through motivating employees with the need for ethical behavior (Hollis & Yakhou, 2008) through a focus on long-term objectives versus short-term profits. For your discussion: Use the EC Library to locate an article that addresses the ethical issues associated with performance-based incentive systems. This article can be a peer reviewed research-based journal article or a magazine/newspaper story. Analyze the issue and devise an adaptation of the incentive system discussed in the article to increase ethical behavior. This might mean that you offer an alternative to a strictly sales-based incentive system. Consider the three major approaches (utilitarian, rights and duties, and fairness and justice) when discussing your alternative. Describe how organizations can design systems that support ethical behavior, while also providing incentives for high levels of performance.
Explanation / Answer
Let us consider the article from the http://everydaylife.globalpost.com/ethical-implications-employee-incentive-program-14920.html
This article addresses the various ethical issues that are associated with the performance based incentive programs.
Incentives are monetary recognitions that are given to employees in order to make them give more outputs than usually expected. This might sometimes cause ethical issues pertaining to employee morale, peer relationship, affecting cash flow of the company, unfair treatment of employee, decreased standards of quality etc.
When organizations offer incentives, employees will put in their full efforts and will try to increase the sales thereby increasing revenue for the company. Employees will then start focusing towards the incentives rather than the salary that is offered for them. The salary that is fixed for them is thought as the base wages which the employee will be getting even if they work or not. This kind of a mindset will affect the employee morale which will result in more harm than good. The exact opposite of what the Utilitarian approach is all about. In ethics, the actions of an organization should result in more good than bad, which is the emphasis of the Utilitarian approach.
When incentives are offered based on a set target, this might affect the staff functions in an organization as they will be supporting the line functions. Incentives will be offered only to the line functions since they are actively involved in production. This might cause an unfair treatment of employees and might also distort the rights of employees.
In order to overcome the ethical issues arising out of the incentive systems, companies should try to adopt alternate means by which they can offer incentives to the entire organization there by avoiding all chances of bias and unfair treatment issues. Companies should come forward to offer Bonus to all employees based on the organization performance. This bonus program should be based on the process of ongoing growth in an organization. This in short can be called as the POOGI bonus scheme which was stressed by Constraint Management Specialists John Caspari and Pamela Caspari. The concept for the same is explained in their book called "Management Dynamics".
POOGI bonus model stresses that based on the performance of the organization, all the employees across the organization will be entitled for bonus immaterial of they being line or staff authorities. This is an alternative which the organizations can adopt. This will also enable the organizations to overcome the issues pertaining to the Rights Approach, the unfair treatment and the Utilitarian approach.