Developing an Incentive Plan

Along with wages and salaries, many organizations offer incentive pay, which is pay specifically designed to energize, direct, or control employees' behavior. Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes. For incentive pay to motivate employees to contribute to an organization's success, the pay plans must be well designed. Incentive pay has three broad categories that are linked to individual, group, or organizational performance.

Read the case below and answer the questions that follow.

Silver Sun is a small online marketing company that consults with small businesses to help them develop and maintain company websites and internet visibility. It was founded by Tim Tucker and his partner, Alice Livingston. As a small entrepreneurial start$-$up company, Tim and Alice handled all aspects of business. Two years after its founding, the company has become successful, expanding past the point where Tim and Alice can keep up with customer demand.

As a result, they have decided they have decided they need to hire additional staff. They've decided to start by hiring two marketing professionals and a graphic designer. Because Silver Sun has never hired employees before, it is starting from scratch with regard to its pay policies. They've determined the base pay for these jobs, but also want to incorporate a payfor$-$performance system to help motivate and reward their staff for their contributions to the success of the company.

Although business has been good, cash is still tight, and Tim and Alice are concerned with the company's ability to pay large salaries if market conditions affect demand. They are also unsure of their abilities to set up a well$-$developed performance management system for new employees because in the past, it has only been the two of them, and they've held each other mutually accountable for the success of the company. The new staff will be required to work together on projects; the graphic designer in particular will have to cooperate with both of the other new hires and the founders of the company on a regular basis. Tim and Alice expect that the new hires will become an integral part of the company; they are more than doubling the staff, yet the company will still only consist of five people in total. The performance of each employee will have a substantial impact on the business's overall results.

I

A potential risk of adopting a profit sharing plan is:

Multiple Choice

the company is too small for a profit sharing plan to be effectively implemented

it may not motivate performance if employees cannot see how their actions affect company profitability

it can lead to increased competition among employees