How Should Incentive Money Be Distributed? Actna Communications Inc. is a small firm with 90 employees installing telecommunication equipment. A team of consultants has advised the company owners to introduce the following in- centive program. Any increase in profits from one year to the next would be divided as follows: 20 percent would be divided among employees and 80 percent would go to the firm's owners, savings, and future capital investments. The total pool of money for employees would then be allocated as follows. One half, or 50 percent, would be allocated among those employees who re- ceive the top appraisal rating (which is a 5 in the company's rating scale). The next one third, or thirty-three percent, of the money would be allocated among those employees who received the next highest appraisal rating (which is a 4 in the company's ratings scale). The remaining 17 percent of the money would be allocated among those employees who were rated in the middle of the scale (or those who were rated as 3). Those who were rated in the two lowest categories (1 or 2) would receive zero from the pool of money. Let's assume, for instance, that profits increased $900,000 from one year to the next. According to the formula described here. the total incentive pool of money to be distributed among employ- ces would be $180,000, or 20 percent of the profit increase. Ninety thousand dollars of that incentive amount (50 percent) will go to those employees who were rated at the top or as a 5, $60,000 of the incentive amount will go to those employees who were rated as 4, and the remaining $30,000 would be distributed among those who were rated as 3. Critical Thinking Questions 11-25. Do you agree with the proposal put forward by the consulting firm? Why or why not? Explain. 11-26. What do you see as the main advantages and disadvan- tages of this proposal? Explain. 11-27. As a small-firm owner, do you think it is a good idea to distribute profit gains across the board among all employ- ees or would you rather distribute the profit gains based on individual contributions? Explain. Team Exercise 11-28. Divide the class into teams of five. Some teams are asked to defend the position that the proposed plan is fair and reasonable; other teams are asked to argue that this is a dangerous proposal that may create widespread conflicts among employees, leading to future declines in overall performance. After each team meets for approximately 15 minutes, both sides will then discuss their respective position in class, with the instructor acting as a moderator. Experiential Exercise: Team 11-29. Divide the class into teams of five. Each team is asked to evaluate the proposed plan and develop a set of conclu- sions about whether the plan should be accepted as is or should be modified, and, if so, how. Teams will present their conclusions to the entire class. The instructor will moderate discussion among various teams and provide his or her own views on the issue. Experiential Exercise: Individual 11-30. There is much in the literature on gainsharing and profit sharing, and one of the key issues is the extent to which any money generated by that incentive plan should be divided equally among employees or differentially based on criteria such as individual performance, seniority. job title, level in the organizational hierarchy, and so on. Based on your review, what do you think is the best crite- rion that should be used to allocate the pool of incentive money? Justify your answer.