CHAPTER 1 INTRODUCTION

COMPENSATION Compensation is a basic approach that provides monetary value to employees in exchange for duties performed. It may achieve several purposes that helps in recruitment, job performance, and job satisfaction. Compensation management, popularly known as wage and salary administration, remuneration management, or reward management, is mainly concerned with structuring and implementing whole compensation package. The traditional concept of wage and salary administration focused on only calculation of wage and salary structures in organizational set up. However, with the passage of time different forms of compensation, entered the business scenario which necessitated to take wage and salary administration in more systematic and comprehensive way with a suitable change in its nomenclature. Beach has defined wage and salary administration as follows: "Wage and salary administration refers to the establishment and implementation of sound policies and practices of employee compensation. It includes such areas as job evaluation, surveys of wages and salaries, analysis of relevant organizational problems, development and maintenance of wage structure, establishing rules for administering wages. Wage payments, incentives, profit sharing, wage changes and adjustments, supplementary payments, control of compensation costs and other related items"

Compensation Objectives and Policies Compensation objectives should facilitate the effective utilization and management of an organizations human resources, while also contributing to the overall objectives of the organization. A compensation program, therefore, must be tailored to the needs of an organization and its employees. It is not uncommon for organizations to establish very specific goals for their compensation program. Formalized compensation goals serve as guidelines for managers to ensure that wage and benefit policies achieve their intended purpose. The more common goals of compensation policy include: 1. To reward employees past performance 2. To remain competitive in the labor market 3. To maintain salary equity among employees 4. To motivate employees future performance 5. To maintain the budget

6. To attract new employees 7. To reduce unnecessary turnover To achieve these goals, policies must be established to guide management in making decisions. Formal statements of compensation policies typically include the following: 1. The rate of pay within the organization and whether it is to be above, below, or at the prevailing community rate 2. The ability of the pay program to gain employee acceptance while motivating employees to perform to the best of their abilities 3. The pay level at which employees may be recruited and the pay differential between new and more senior employees 4. The intervals at which pay raises are to be granted and the extent to which merit and/or seniority will influence the raises 5. The pay levels needed to facilitate the achievement of a sound financial position in relation to the products or services offered Policies must be established very early in the process of compensation management.

Components of Compensation Compensation refers to direct and indirect benefits received by an employee for providing services to employer in an organization. Cascio defines compensation as "Compensation includes direct cash payments, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity So based upon above explanation, we may classify its various components as follows: 1. Wage and Salary: Wage and salary are the most basic form of compensation that are required irrespective of the size and form of organization. Wage refers to remuneration paid to workers particularly on hourly basis. Salary refers to as remuneration paid to white- collar employees that comprises managerial personnel too. Wages and salary are paid on the basis of fixed period of time and normally are not related with productivity of an employee at a given time.

2. Incentives: Incentives are the basically an add up to employees payment besides the payment of wages and salaries. Usually these are linked with productivity, in terms of higher production or cost saving or both. These incentives may be given on individual basis or a group as a whole 3. Fringe Benefits: Fringe benefits comprises of benefits that have long-term impact like provident fund, gratuity, pension; or are gives on happening of some events like medical benefits, accident relief, health and life insurance; or some other facilities like uniforms, Canteens, recreation, etc. 4. Perquisites: These are basically provided to managerial personnel either to push up their job performance or to retain them in the organization. Such perquisites include company car, club membership, free residential accommodation, paid holiday trips, stock options, etc.

Classification of Compensation Compensation can be classified into two categories: 1. Financial Compensation Financial compensation is most popular and important compensation that is given in form of money. It is the most important motivational factor that satisfies employees basic needs like food, clothing, etc. It is further categorised in two parts: a. Direct Compensation Direct compensation means compensating employees by paying them money in following forms: Wages- Wages means remuneration paid in cash for the work performed by an employee. Bonus- Bonus means extra cash paid to an employee for exceeding his performance or on completion of specified project or target. Other financial incentives that are directly given to employees in form of cash

b. Indirect Compensation Indirect compensation means compensating employees in form of indirect cash benefits that are mentioned below:

Travelling allowance- Travelling allowance means reimbursement of expenses incurred by an employee on travelling for companys work. House Rent allowance- HRA is paid to employee when he stayed in rented accommodation. Medical expenses- Medical expenses means reimbursement of expenses incurred by an employee on his ill health. Accident relief- It refers to reimbursement of expenses on happening of some uncertain event. Health and life insurance- It is given by the company to secure the health and life of employee.

2. Non-Financial Compensation Non-financial compensation refers to compensating employee not in form of money but in some other forms that stimulate employees morale and also improved his performance. It can be in following form: a. b. c. d. e. f. Job security Recognition Participation Pride in job Delegation of responsibility Other incentives

MOTIVATION Today's increasingly competitive business world means a highly motivated workforce is vital for any organization seeking to achieve good results. Motivating people shows you how best to put motivational theories into practice to create and sustain a positive environment in the workplace evaluate your motivational skills helping you raise performance levels and get the most from both yourself and your staff The art of motivating people starts with learning how to influence individuals behavior once you understand this you are more likely to gain the results at the organization and its members want. Motive may be defined as an inner state of our mind that activates and directs our behavior. It makes us move to act. It is always internal to us and is externalized via behavior.

What is Motivation Motivation is the word derived from the word 'motive' which means needs, desires, management's basic job is the effective utilization of human resources for achievements of organizational objectives. The personnel management is concerned with organizing human resources in such a way to get maximum output to the organization and to develop the talent of people at work to the fullest satisfaction motivation implies that one person, in organization context a manager, includes another, say on employee to engage in action by ensuring that a channel to satisfy those needs and aspirations becomes available to the person. In addition to this, the strong needs in a direction that is satisfying to the latent needs in employees and harness them in a manner that would be functional for the organization wants or derives within the individuals. It is the process of stimulating people to actions to accomplish the goals. In the work goal context the psychological factors stimulating the people's behavior can be: Desire for money Success Recognition Job-satisfaction Team work etc.

One of the most important functions of management is to create willingness amongst the employees to perform in the best of their abilities. Therefore the role of leaders is to arouse interest in performance of employees in their jobs.

Process of Motivation The process of motivation consist of three stages 1. Felt need derive 2. A stimulus in which needs have to be aroused. 3. When needs are satisfied the satisfaction or accomplishment of goals therefore we can say that motivation is a psychological phenomenon which means needs and wants of the individuals have to be tackled by framing an incentive plan

Motivating different people in different ways Motivation is not only in a single direction i.e. downwards. In the present scenario, where the workforce is more informed, more aware, more educated and more goal oriented, the role of motivation has left the boundaries of the hierarchy of management. Apart from superior

motivating a subordinate, encouragement and support to colleague as well as helpful suggestions on the right time, even to the superior, brings about a rapport at various work levels. Besides, where workforce is self motivated, just the acknowledgement of the same makes people feel important and wanted. One of the most widely mentioned theories of motivation is the hierarchy of needs theory put forth by psychologist Abraham Maslow. Maslow saw human needs in the form of a hierarchy, ascending from the lowest to the highest, and he concluded that when one set of needs is satisfied, this kind of need ceases to be a motivator. As per his theory these needs are: (i) Physiological needs : These are important needs for sustaining the human life. Food, water, warmth, shelter, sleep, medicine and education are the basic physiological needs which fall in the primary list of need satisfaction. Maslow was of an opinion that until these needs were satisfied to a degree to maintain life, no other motivating factors can work. (ii) Security or Safety needs: These are the needs to be free of physical danger and of the fear of losing a job, property, food or shelter. It also includes protection against any emotional harm. (iii) Social needs Since people are social beings, they need to belong and be accepted by others. People try to satisfy their need for affection, acceptance and friendship. (iv) Esteem needs According to Maslow, once people begin to satisfy then need to belong, they tend to want to be held in esteem both by themselves and by others. This kind of need produces such satisfaction as power, prestige status and self-confidence. It includes both internal esteem factors like self- respect, autonomy and achievements and external esteem factors such as states, recognition and attention. (v) Need for self-actualization: Maslow regards this as the highest need in his hierarchy. It is the drive to become what one is capable of becoming, it includes growth, achieving one's potential and self- fulfillment. It is to maximize one's potential and to accomplish something.

As each of these needs is substantially satisfied, the next need becomes dominant. From the standpoint of motivation, the theory would say that although no need is ever fully gratified, a substantially satisfied need no longer motivates. So if you want to motivate someone, you need to understand what level of the hierarchy that person is on and focus on satisfying those needs or needs above that level. Maslow's need theory has received wide recognition, particularly among practicing managers. This can be attributed to the theory's intuitive logic and ease of understanding. However, research does not validate these theory. Maslow provided no empirical evidence and other several studies that sought to validate the theory found no support for it.

Definition of motivation Motives Almost all human behavior is motivated if requires no motivation to grow hair, but getting a hair cut dues motives prompt people to action. Hence, these are at the very heart of motivational process motives provide an activating thrust toward reaching a goal. Goals Motives are derived towards goals motives generally created a state of physiological or psychological imbalance. Attaining goal restores balance. Behavior Behavior is a series of activities to be undertaken behavior is directed to achieve a goal.

Importance of Motivation Motivation is a very important for an organization 1. Puts human resources into action Every concern requires physical financial and human resources to accomplish the goals. This can be done by building willingness in employees to work. This will help the enterprise in securing best possible utilization of resources. 2. Improves level of efficiency of employees

The level of a subordinate or a employee does not only depend upon his qualifications and abilities for getting best of his work performance, the gap between ability and willingness has to be filled which helps in improving the level of performance of subordinates. This will result in to : a. Increase in productivity b. Reducing cost of operations, and c. Improving overall efficiency 3. Leads to achievement of organizational goals The goals of an enterprise can be achieved only when the following factors take place. a. There is best possible utilization of resources b. There is a co-operative work environment c. The employees are goal directed and they act in a purposive manner. d. Goals can be achieved it coordination and cooperation take place which can be effectively done through motivation. 4. Builds friendly relationship Motivation is an important factor which brings employees satisfaction. This can be done by keeping into mind and framing an incentive plan for the benefit of the employees. This could initiate the following things a. Monetary and non-monetary incentives, b. Promotion opportunities for employees, c. Disincentives for inefficient employees. In order to build a cordial, friendly atmosphere in a concern, the above steps should be taken by a manager. This would help in: a. Effective co-operation which brings stability, b. Industrial dispute and unrest in employees will reduce, c. The employees will be adaptable to the changes and there will be no resistance to the change. simultaneously

d. This will help in providing a smooth and sound concern in which individual interests will coincide with the organizational interests. e. This will result in profit maximization through increased productivity. 5. Leads to stability of workforce Stability of workforce is very important from the point of view of reputation and goodwill of a concern. Motivation is an internal feeling which can be understood only be managers since he is in close contact with the employees. Needs, wants and desires are inter-related and they are the driving force to act.

We can say that motivation therefore is a continuous process since motivation process is based on needs which are unlimited. The process has to be continued throughout. 1. Motivation will help him achieve his personal goals. 2. If an individual is motivated, he will have job satisfaction. 3. Motivation will help in self-development of individual. 4. An individual would always gain by working with a dynamic team.

Similarly Motivation is important to a business as 1. The more motivated the employees are, the more empowered the team is. 2. The more is the team work and individual employee contribution, more profitable and successful is the business. 3. During period of amendments, there will be more adaptability and creativity. 4. Motivation will lead to an optimistic and challenging attitude at workplace.

THE PAY-FOR-PERFORMANCE STANDARD To raise productivity and lower labor costs in todays competitive economic environment, organizations are increasingly setting compensation objectives based on a pay-for-performance standard. It is agreed that managers must tie at least some reward to employee effort and

performance. Without this standard, motivation to perform with greater effort will be low, resulting in higher wage costs to the organization. Pay-for-performance standard by which managers tie compensation to employee effort and performance The term pay-for-performance refers to a wide range of compensation options, including merit pay, cash bonuses, incentive pay, and various gain sharing plans. Each of these compensation systems seeks to differentiate between the pay of average and outstanding performers. Interestingly, productivity studies show that employees will increase their output by 15 to 25 percent when an organization installs a pay-for-performance program. Unfortunately, designing a sound pay-for-performance system is not easy. Considerations must be given to how employee performance will be measured, the monies to be allocated for compensation increases, which employees to cover, the payout method, and the periods when payments will be made. A critical issue concerns the size of the monetary increase and its perceived value to employees. The American Compensation Association reports that annual salary budgets have only risen between 5 and 5.4 percent since 1987. These percentages only slightly exceed yearly increases in the cost of living. While differences exist as to how large a wage or salary increase must be before it is perceived as meaningful, a pay-for-performance program will lack its full potential when pay increases only approximate rises in the cost of living.

The Motivating Value of Compensation Pay constitutes a quantitative measure of an employees relative worth. For most employees, pay has a direct bearing not only on their standard of living, but also on the status and recognition they may be able to achieve both on and off the job. Since pay represents a reward received in exchange for an employees contributions, it is essential that the pay be equitable in terms of those contributions. It is essential also that an employees pay be equitable in terms of what other employees are receiving for their contributions.

INDIAN BANKING SECTOR Banking in India has its origin as early as the Vedic period. It is believed that the transaction from money lending to banking must have occurred even before menu, the great Hindu jurist, who has devoted a section of his work to deposit his advances and laid down rules relating to rest of interest. During the Mogul period, the indigenous bankers played a very important role in lending money and financing foreign trend commerce. During the day of east India Company, it was the turn of the agency houses to carry on banking business. The general bank of India was the first joint stock bank to t be established in the year 1786.the other which followed where the

bank of Hindustan and Bengal bank. The bank of Hindustan is reported to have continued till 1906 while the other two failed in mean time. In the first half of the 19 century the east India company established three bank, the bank of Bengal in 1809, the bank of Bombay in 1840,the bank of madras in 1843. This three banks also known as residency bank, where independent units and functioned well. this tree banks where amalgamated in 1920 and new bank, the imperial bank of India was established on 27th jan,1921.with passing of the state bank of India act in 1955the undertaking of the imperial bank of India was taken by the newly constituted state bank of India. The reserve bank which is the central bank was creatsd in 1935 by passing reserve bank of India act 1934.in the wakw of the Swadeshi movement, a numbers of banks with Indian management were established in the country namely, Punjab national bank ltd, bank of India ltd. canara bank ltd, Indian bank ltd,the bank of Baroda ltd, central bank of India ltd. On July 19,1969,14 major banks of the country were nationalized and 15th April 1980 six more commercial private sector banks were also taken over by the government. Today the commercial banking system in India may be distinguished into: 1.Public sector bank a. state bank of India and its associated banks called the state bank group. b. 20 nationalized bank. c. regional rural banks mainly sponsored by public sector banks 2. Private sector banks a. old generation private bank. b. new generation private banks. c. foreign banks in India. d. scheduled co-operation banks. e. non scheduled banks 3.Co-operative sector The co-operative banking sector has been developed in the country to the supplement the village money lender. The co-operative banking sector in India is divided into 4 components: a) b) c) d) e) State co-operative bank Central co-operative bank. Primary agriculture credit societies. Land development bank. Urban co-operative banks.

f) Primary Agriculture development banks. g) Primary land development banks. h) State land development banks Development banks 1. Industrial finance corporation (IFCI) 2. Industrial development bank of India (IDBI) 3. Industrial investment bank of India (IIBI) 4. Industrial credit and investment corporation of India (ICICI) 5. Small industries development bank of India (SIDBI) 6. SCICI LTD. 7. National bank for agriculture and rural development (NABARD) 8. National housing bank

STATUS OF INDIAN BANKING INDUSTRY It is useful to note some telling facts about the Indian banking industry juxtaposed with other countries, recognizing the differences between the developed and the emerging economies. First, the structure of the industry: In the worlds top 1000 banks, the there are many more large and medium-sized domestic banks from the developed countries than from the emerging economies. Illustratively, according to The Banker 2004, out of the top 1000 banks globally, over 200 are located in USA, just above 100 in Japan, over 80 in Germany, over 40 in Spain and around 40 in the UK. Even China has as many as 16 banks within the top 1000, out of which, as many as 14 are in the 500, India, on the other hand, had 20 banks within the top 500 banks. This is perhaps reflective of differences in size of economies and of financial sectors. Second, the share of bank assets in the aggregate financial sector assets: In most emerging markets, banking sector assets comprise well over 80 per cents of total financial sector assets, whereas these figures are much lower in the developed economies. Furthermore, deposits as a share of total bank liabilities have declined since 1990 in many developed countries, while in developing countries public deposits continue to be dominant in banks. In India, the share of banking assets is around 75 per cent, as of endMarch 2004. There is, no doubt, merit in recognizing the importance of diversification in the

institutional and instrument specific aspects of financial intermediation in the interest of wider choice, competition and stability. However, the dominant role of banks in financial intermediation in emergence economies and particularly in India will continue in the medium term and the banks will continue to be special for a long time. In this regard, it is useful t emphasis the dominance of the banks in the developing countries in promoting non-bank financial intermediaries and service including in development of debt market. Even where role of banks is apparently diminishing in the emerging markets, substantively, they continue to play a leading role in non-banking financial activities, including the development of finance markets. Third, internationalization of banking operations: The foreign controlled banking assets, as a proportion of total domestic banking assets, increased significantly in several European countries (Austria, Ireland, Spain, Germany and Nordic countries), but increases have been fairly small in some others (UK and Switzerland). Amongst the emerging economies, while there was marked increase of foreign controlled ownership in several Latin American economies, the increase has, at best, been modest in the Asian economies. Available evidence seems to indicate some correlation between the extent of liberalization of capital account in the emerging markets and the share of assets controlled by foreign banks. as per the evidence available, the form of branches, seem to enjoy on par with domestic banks, as compared with most of the other developing countries. Furthermore, the profitability of their operation in India is considerably higher than the foreign banks operation in most other developing countries. India continues to grant branch licenses more liberally than the commitments made to the W.T.O

Fourth, the Share of state owned banks in total banking sector assets: Emerging economies with predominantly government owned banks, tend to have much higher state ownership of banks compared to their developed counterparts. while many emerging countries choose to privatized their public sector banking industries after a process of absorption of the overhang problems by the government, we have encouraged state run banks to diversify ownership by inducting private share capital through public offerings rather than by strategic sales and still absorb the overhang problems. the process has helped reduced the burden on the govt, enhance transparency, encourage market displined and improved efficiency as reflected in stock market valuation promote efficient new private sector banks, while drastically reducing the share of the wholly government owned public sector banks is a good example of a dynamic mix of public and privet ownership in banks. A noteworthy feature of banking reforms in India is the growth of newly licensed privet sector banks, some of which have attained globally best standards in terms of technology, services and sophistically promoted banks have surpassed branches of foreign banks in India. And could be a role model for other banks.

BANK SYSTEM Introduction The reserve bank of India (RBI) is Indias central bank. Through the banking industry is currently dominated by public sector banks, numerous privet and foreign banks exist. Indias government owned banks dominate the market. Their performance has been mixed with a few being consistently profitable. Several public sector banks are being restructured, and in some the government either already has or will reduce its ownership. Private and foreign banks The RBI has granted operating approval to a few privately owned domestic banks; of these many commenced banking business. Foreign banks operate more than 150 branches in India. The entry of foreign banks is based on reciprocity, economic and political bilateral relations. An inter-departmental committee approves applications for entry and expansion. Capital adequacy norm Foreign banks were required to achieve an 8% capital adequacy norm by march 1993, while Indian banks with overseas branches had until march 1995 to meet that target. All other banks had to do so by march 1996. The banking sector is to be used as a model for opening up of Indias insurance sector to privet domestic and foreign participants, while keeping the insurance companies in operation. Banking India has an extension banking network, in both urban and rural areas. All large Indian banks are nationalized, and all Indian financial institutes are in the public sector.

RBI Bank The reserve bank of India is the central banking institutions. It is the sole authority for issuing bank notes and the supervisory for banking operations in India. It supervises and administers exchange control and banking regulations, and administers the governments monitory policy. It is also responsible granting licenses for new bank branches. 25 foreign banks operate in India with full banking licenses. Several licenses for private bank have been approved. Despite fairly broad banking coverage nation wide, the financial system remains inaccessible to the poorest people in India. Indian banking system : The banking system has three tiers. These are then scheduled commercial banks: the regional rural banks which operate in rural areas not covered by the scheduled banks; And the cooperative and special rural banks. Scheduled and scheduled banks There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200 regional rural banks; more than 350 central cooperatives banks,20 land development banks; and a number of primary agricultural credit societies .in terms of business , the public sector banks, namely the state bank of India and the nationalized banks, dominate the banking sector.

Logical financing All sources of local financing are available to foreign-participation companies in corporate in India, regardless of the extent of foreign participation. Under foreign exchange regulations, foreigners and non-residents, including foreign companies, require the permission of the reserve bank of India to borrow from a person or company resident in India.

MOTIVATION WITH THE HELP OF COMPENSATION Motivation and performance are very complex issues affected by many factors. No one factor can guarantee motivation or performance in the absence of other critical factors. Money cannot be effectively substituted for good management. Some people think that money can't be used to motivate employees and that is true for some employees, but for a large percentage of the workforce it does not have to be that way. Studies show almost everyone is motivated by money to some degree, many to a moderate degree, and most to a great degree when compensation is properly designed. Some psychologists would argue that money doesn't change behavior because they do not consider it properly termed a "motivator", but rather they call it a "director" of behavior. This is a semantic argument. The idea is whether money can be used as a tool to change employee behavior in a desirable direction. It is unfortunate that in most companies and for most jobs, pay is a small factor in managing and changing employee behavior. However, inadequate use of incentive plans and problems with compensation design and strategy are usually to blame. Results of the Research Behavioral scientists, employee and management surveys, and my client experiences show compensation can be a strong driver of employee behavior under the right circumstances when properly designed. a) In a survey of over 1500 compensation and productivity professionals by the American Compensation Association and the American Productivity Center various types of compensation or rewards systems that they utilized were rated as having a "Positive" or "Very Positive" impact on performance in 66% to 89% of the companies where the companies used specific techniques such as gain sharing, small group incentives, profit sharing, individual incentives, and lump sum bonuses. b) In a national survey of 1200 randomly selected U.S. employees across many different types and sizes of companies 54% of employees rated direct financial compensation as "very important" or "extremely important" to motivation. When stratified by age group there was statistically insignificant difference by age group. Gen X and Gen Y were no different than Baby Boomers in this respect. c) In a national survey of 2500 employees, 84% of those who understood their organization's reward/performance link believe they can help make a difference. If they also believe that the company will share its success when the strategy is achieved, 91% say they are motivated to help the company succeed.

d) In a study of 663 companies with performance reward compensation plans covering 1.3 million employees and a broad section of the workforce of each company (not just managers and salespeople) by the American Compensation Association, they found that at the median, organizations earned $2.34 for every dollar they spent on payouts; thus a close approximation of the net return on plan investment is 134%

How to Motivate with Pay/ Compensation In jobs where significant variability in pay occurs in compensation and where it is closely related to key performance factors, then pay can be a big motivator. Some of my clients have gotten tremendous increases (over 20%, and often continued growth at a similar rate compounded year after year) in productivity in production jobs (white collar and blue collar), in sales jobs, and significant improved results in executive jobs. Many companies that put in company-wide incentive plans have gotten great productivity results with well-designed plans. Clients of mine that have gotten a big change in behavior following the implementation of the incentive plan include PacifiCare Health Systems (about 100 claims processors), the sales force for a wholesale steel distributor, the sales force for an air conditioning manufacturer, and the Juanita's Foods executive team. These clients have told me that they attribute much of the change in behavior to the incentive plan. The head of claims processing at PacifiCare said that some of their slowest processors quickly became among the fastest processors because of the incentive plan. The good performers prior to new compensation plan implementation remain good performers and may not improve much because they are already giving close to 100% effort, but the middle and the bottom performers are where there is significant opportunity for change. Most (though admittedly not all) are money motivated when they perceive the target is achievable and within their reach and where the rewards are also significant for target achievement. If a company is able to get significant differences in behavior from 50% to 70% of people because they are motivated by money, then the payoff for the compensation plan can be great. It is a shame for an employer to ignore the motivational effect that can be achieved with payroll dollars since it is such a large expense item for most businesses. Failure in Compensation Design Leads to Failure to Motivate (behavioral change) Typical compensation design problems include a) Failure to tie pay closely to achievement of objective and realistic performance measures. b) Failure to regularly measure and provide feedback on performance. c) Failure to design variances in pay related to performance that are large enough to be perceived by the employee as worth the effort.

d) Over-reliance on salary as the only significant method of financial rewards In my experience, one of the biggest single impediments to the use of money as motivator is the manager's inability or insufficient effort to measure employee performance accurately and regularly, give performance feedback to the employee regularly, and set goals/standards that are challenging, realistic, and have strong relationship to business success. Since it is easier to measure performance and set performance standards/objectives in some jobs than others, money as motivator is more effectively used in some jobs than others. Nevertheless, company wide incentive plans can be powerful in the right circumstances. Another major impediment is when employee motivation and effort, is overwhelmed by the impact of poor business strategy or poor business environment (i.e. the economy). Compensation design (which goes far beyond the issue of labor market competitiveness) is not a panacea for performance problems nor is it the silver bullet for business success. However a well-designed incentive plan has the potential to be a powerful tool (not just a "hygiene factor") that businesses should not ignore.