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Performance Pay And Financial Incentives

What is Incentives?

Anincentiveis something that motivates an individual to perform an action.2Why Incentives are Important?

Incentives are considered beneficial to both employers as well as employees in following ways.

Workers are likely to work at their best when they are offered monetary rewards for good performance.

Provide opportunity for hard-working & ambitious employees to earn more.

To improve work-flow, work methods & man machine relation ship.

To bring employee involvement to make employee innovative.

Incentives are the sound technique of improving productivity.

Help to improve discipline and industrial relation.

The cost of supervision are reduced.

To obtain desired result.

Basic forms of incentives.

The basic from of incentives are as follow.Bonuses is an incentive payment that is given to an employee beyond his normal standard wages. It is generally given at the end of the year & does not become part of the basic pay.The payment of bonus Act 1965 is applicable to every factory or establishment in which 20 or more person are employed in an accounting year.

Merit pay Merit pay is a reward based pay on haw well an employee done the assigned job. Higher the performance Greater will be the reward.The payment is depend on individual employees performance.

Commission for sales people is paid on the basis of sales made by the employee, through different plan. Such as Salary plan :- where new salesman is appointed, is unable to generate new.Commission plan :- where organization is totally based on sales of their product.Combination of both :- is the most frequently used method.

Classification of Incentives Plans

Incentives plansIndividualOrganization- wideGroupTime Rate SystemPiece Rate SystemCo-partnershipGain-SharingESOPSTime Based IndividualTime based incentive planUnder time based plan, per hour wage rate is determined & incentives paid on the bases of time saved.Time based incentives plane is divided in four different ways.Hasley plan, Rowan plan, Emerson plan, Bedeuax plan.This all plan more or less follow same method i.e. (pay bonus on the basis of timed saved by employee), but with different formula.

Output based incentive planUnder output based plan, per piece wage rate is determined & incentives paid on the bases of output produced. i.e. more output in standard time OR standard output in less time.For output based incentive following 3 method can be used.Taylor plan, Merrick plan, Gnatt plan.Wages = Number of units produced x Rate of wage per unitFor example, a worker produces 8 units in one day and the rate of wages per unit is 10. The total wages for the day would be: 8 x Rs. 10 = Rs. 80

Gain-sharingThis method aims at increasing productivity & decreasing labour cost & sharing the result gains wit employee.It is based on a mathematical formula which compares a standard perform with actual performance during given period.When actual performance exceed the standard performance, shaving are shared with employees.ESOPs (Employee Stock Option Plans)This method is originated in the USA in early 90s.Under this plan, the eligible employee are allotted companys share below the market price.The term stoke option implies the right of eligible employee to purchase a certain amount of stoke in future at an agreed price.The eligibility criteria may include length of service, contribution to the department etc

Organization wide Co- partnershipCo-partnership refers to the state of being co-partners in any undertaking. It also refers to a joint partner, as in a business enterprise or an associate. In business management, it denotes a form of corporate democracy where the employees of an organization are partners in the company.

Group based or team-based incentives plans reward all team members equally based on overall performance of the team member.Under group based incentive plan, individual out put cant be measured.So team performance is evaluated on the basis of time taken rather than output produced, if team complete their target in well advanced to standard time the team member are eligible for incentives.Payment to team members may be made in the form of cash bonus or in the form of non-cash reward such as pleasure trip, times off or luxury items.Team based incentives foster cohesiveness among tem members.Methods for team based incentives plans are Preistmans production planRucker planScalon planTown plan and so on

GroupPrinciples for Effective Implementation of IncentivesPay for performance.

Link incentives to career development and challenging opportunities.

Link incentives to measurable competencies.

Match incentives to the culture of the organization.

Keep group incentives clear and simple.

Over-communicate.

Remember greatest incentive is the work itself.

Advantages and Disadvantages offinancial incentives ADVANTAGES

Increases ProductivityAn employee incentive program increases the productivity of the employees. Everyone knows how important money is. To buy comfort in life, to take care of the day-to-day needs, each and every person needs money.

Enhances PerformanceThere is no doubt about the fact that incentive programs enhance the employees' performance.

Contributes to Employee RetentionIf a lucrative incentive program is in place, the employees who perform more, would not want to switch jobs. Thus, an incentive program which offers more salary and conveniences to the employees, contributes to employee retention, saving a lot of hiring and training costs for the organization.

14DISADVANTAGES De-motivates Employees

Employee incentive ideas can sometimes de-motivate certain employees and backfire. If individual incentives are given by an organization and some of the employees are unable to meet their goals, they would obviously not get the incentives.

Creates Conflicts

Another drawback is that if incentives are based on group performance, the top performers, who obviously contribute more to team goals, might feel that they are working more but are being given the same incentives as the low performers. This can create many conflicts in the team, which can affect the team's work and ability, in the long run.

Contrary to Teamwork

Incentive programs can sometimes create an environment of extreme competitiveness. This is not good for offices in which most of the jobs are done in teams. Competitiveness can create resentment and hence, affect the relationship between the team members. This decreases the ability of the employees to work in teams.