Incentive Plans

Essay by eldonfieldsUniversity, Bachelor'sA+, August 2006

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Incentive plans can be one method of encouraging certain behavior within an organization. Healthways has an incentive program which is pay for organizational performance. According to Noe, et al, an effective performance plan should be linked to an organizations goal and employees should believe they can meet performance standards (Noe, Hollenbeck, Gerhart, & Wright, 2004).

Incentives linked to profits and stock prices have a degree of risk for the employee. Profits and stock prices can fluctuate and in doing so, can effect the incentive to the employee. Incentive plans linked to profits are "likely to be most effective in organizations that emphasize growth and innovation" (Noe, et al, 2004, p.386), Healthways is such an organization.

The incentive at Healthways is tied to the financial performance of the company. The company has to meet predetermined financial objectives for the bonus pool to be funded. The objective for the 2006-2007 fiscal year of Healthways is to "become the most highly respected company in the world, changing the face of healthcare by improving the health of 25 million people around the world while growing to a $5 billion company" (Healthways, 2006).

The incentive plan for Healthways is closely tied to the company's objective. The objective is divided into sub objectives. Financial objectives: What are the results our shareholders expect? Customer objectives: What do we want our customers to say about us? Internal Process Objectives: How will we use our shareholders' resources to create trust and value (Healthways, 2006)?

The incentive plan fits with the organization's goals. If the organization is not performing to the expectation of the shareholders, why should the employees be rewarded? If the organization exceeds the shareholders expectations, then the employees should be rewarded.

With any organizational incentive plan, comes risk. Risk for the company and risk for the employee.