Incentives Essay Example | Topics and Well Written Essays - 1500 words

Incentives - Essay Example As much as incentives are meant to encourage workers some end up living them in a worse condition than they were before. Provision of incentives in firms In the efficiency wage theory, incentives ensure that workers are able to acquire benefits than what the market wages offer them (Prendergast, 1999, pp 14). Workers receive such rents mainly because it acts as a security even though they have stable jobs. Another encouraging thing about the incentives is that the contracts can always be reviewed basing on the past performances of the workers (Prendergast, 1999, pp 24). Though the workers do not have to fill the change immediately, it is evident that the good performance will always improve their bargain power in order to move his contract to greater heights. What happens to the firms? There are three major theories that are used to give an overview of different form of incentives in firms (Haltiwanger, 1998, pp 330). The theories include the human capital theory, incentive theory an d the matching theory. Incentives are basically the main cores of the economy. However, they have not been fully introduced to most of the companies yet. Incentives work very well in employment according to the case study of it’s important by various organizations. ... tives cannot be compared to those with lesser incentives; this is mainly because the pay-for performance has always increased the work ratings as most of the employers get to fill the pinch after hiring unprofessional workers (Haltiwanger, 1998, pp 336). As if that is not enough the performance of workers in the entire nation can also be positively affected by the introduction of incentives. However some experts argue that the introduction of incentives should be based on individuals rather than the teams mainly because most of workers would end up being joy riders. For instance a research on the doctors showed that most of them have a higher overhead cost sharing while those who share the costs end up as joy riders. That is why perhaps the effects of incentives in teams are dominated by individuals. Perhaps such benefits should be more technological instead of incentives (Haltiwanger, 1998, pp. 338). Data is vital in any research to prove the importance of incentives that is why the re was need for performance contracts. In the urgency theory, it is predicted that most workers face similar problems in productivity that is why such problems are compared to one another. Executive’s data find minimal evidence of the said relative performance evaluation (Haltiwanger, 1998, pp 340). On the contrary, most firms compare the performance of their senior managers to the performance of stock market when determining rewards for them. These firms are more likely to use stock market than competitor’s performance when doing comparison. Another implication of agency theory is, managers who are close to retirement should sign contracts with incentive provisions, which are steeper, and rewards directly tied to performance due to the fact that reputation concerns are not quiet