A review of: Incentive pay principles

Review of a paper by Gregorio Billikopf Encina, Labor Management Farm Advisor, University of California, Berkeley Chapter from the publication “Labor Management in Dairies” Reviews results from a 1992-93 survey of how over 1000 farmers handled incentives Presents factors to consider in structuring an incentive plan Discusses the importance of structuring and handling incentives correctly

Whether or not to give incentive pay and how to do so is an important question in the world of agriculture. Labor is frequently strenuous or monotonous and often takes place in difficult conditions. This paper looks at some ways to decide when and how to reward employees for extra commitment.

The paper includes the results of research done in 1992-93 on over 1000 farms. It includes both positive and negative comments from farm owners and farm workers. Seventy one percent of the farmers thought that incentives worked well and felt that they made or saved considerable amounts of money by using incentives. On the other hand, approximately 41 % of the farmers stated that incentives require too much administration, have no response, promote an unbalanced work structure or reward unfairly. Workers were also divided in their views of incentives. Some of the workers felt that incentives were offered when employers did not want to pay a fair wage, while others stated that incentives made them feel like part of the team.

The paper lists two types of incentives, used in two different types of situations- casual incentives and structured incentives. Casual incentives involve no set structure and are often spur of the moment. Workers are often utilized to come up with ideas for casual incentives. The key with this type of incentive is that it should be tied to a certain performance objective or commendation, be unexpected and be given discretely. Negative factors may be encountered if there is jealousy, perceived favoritism or perceived social distancing of the employer from the employee. Structured incentives are given for specific items such as milk quality, milk production, reproduction, calf health, and attendance. The paper lists several potential concerns with structured incentives.

As structured incentives are somewhat more complex, the paper lists and discusses seven steps that are helpful in deciding whether to use structured incentives and designing, establishing and trouble shooting them.

Step 1 - Analyze, challenge and determine if incentives are appropriate. Use clear and specific goals and beware of safety incentives, as they may actually encourage people to not report injuries.

Step 2 - Link pay with performance. This, too, must be approached carefully to be fair to the entire group. As with all incentives, this should be monitored for conflicts.

Step 3 - Anticipate loopholes. Sometimes workers will use short cuts to achieve the goal while sacrificing the point of the incentive. There should be a system in place to implement random quality control measures to ensure the program is functioning as intended.

Step 4 - Establish standards and determine pay. Employers should clarify and define the expected performance objective and as well as the conditions for ending the incentive program if it becomes obsolete.

Step 5 - Protect workers from negative consequences. This section lists pointers for being fair to workers and promoting a safe and positive work environment.

Step 6 - Communicate with employees. The employer should be pro active in providing explanations and feedback to employees and be open to suggestions.

Step 7 - Periodically review the program. This is essential to maintaining a functional incentive program as well as establishing performance standards.

One of the primary hindrances to an effective incentive program is lack of appropriate information. This paper presents concise guidelines as well as suggestions and examples to help employers develop and maintain functional incentive programs.

There is also a new personnel resource “Labor Management in Agriculture” available from the University of California Agricultural Issues Center. Written by Gregorio Billikopf Encina, this book looks at a variety of factors that affect worker performance and offers tips on evaluating and improving employee relations programs. Chaper 8 in this publication discusses Incentive Pay.

Related Links:

Employee Incentive Pay in Dairies
Labor Management in Agriculture
Gregorio Billikopf Encina, Labor Management Farm Advisor, University of California, Berkeley


Chanda Lindsay

Chanda Lindsay
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Former Editor at Milkproduction.com

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