A. Importance of incentive Pay plan.
B. Types of incentive pay.
1. Individual incentive plans
2. Group incentive plans.
3. Companywide incentive plans.
C. Advantages of Incentive Pay
D. Designing incentive pay plans.
E. Incentive pay and the motivational models.
Quality of employees work is very critical for company’s success. If planned properly, incentive pay plans may increase employee’s interest in providing better service. This paper discusses the importance of incentive pay plans. The objective of this paper is to show how use of incentive pay plans motivates employees to give their best. This paper analyzes and determines the importance of incentive pay, kinds of incentive pay, advantages of incentive pay, designing incentive pay plans, motivational models and some problems that an incentive pay plan can create.
Incentive pay, also known as pay for performance is generally given for specific performance results rather than simply for time worked. While incentives are not the answer to all personnel challenges, they can do much to increase workers performance. A good incentive pay scheme can motivate employees to work better for the organization. A badly thought out scheme, on the other hand, can be divisive and demoralizing. As competitive pressures mount, organizations are compelled to consider strategies that will help them become more innovative, productive and efficient. The main ingredient of a successful incentive pay plans is the condition of regular, honest communication to employees.
Importance of Incentive Pay Plan
Incentive pay can be defined as a wage system that rewards a worker for productivity above an established standard. A variation of the piece rate system developed by Frederick W. Taylor, incentive pay is based on a bonus given to the worker or workers who exceed a given standard production rate within a defined period of time. Incentive pay plans rely on being an important reward for the employees. Incentive pay, also known as pay for performance is generally given for specific performance results rather than simply for time worked. While incentives are not the answer to all personnel challenges, they can do much to increase worker performance. A good incentive pay scheme can motivate employees to work better, but, on the other hand, a badly thought out scheme can be divisive and demoralizing. Incentive pay shows appreciation and crates a sense of participation in the company’s well being that salaries, no matter how large, don’t convey. A well designed incentive pay plan can also help pull people together and give that extra push that every company need in today’s competitive environment. One important aspect of a successful incentive program is a well founded salary program with appropriate base pay. (Incentive pay by Frederick W. Taylor)
Effective incentive pay systems are based on three assumptions; • Individual employees and work teams differ in how much they contribute to the company, both in what they do as well as in how well they do it. • The company’s overall performance depends to a large degree on the performance of individuals and groups within the company, • To attract, retain and motivate high performers and to be fair to all employees, a company needs to reward employees on the basis of their relative performance. (Gomez-Mejia, L.R., & Balkin, D.R., (1992). Compensation, Organizational Strategy and Firm Performance. Cincinnati, OH: South-Western.)
Types of Incentive Pay
Incentive pay plans can be classified into three categories: 1. Individual incentive plans...