Incentive Schemes

Topics: Motivation, Money, Economics Pages: 6 (1906 words) Published: June 3, 2009

Incentive schemes is a system that a company uses in order to recruit and retain valuable staff, reward performance and productivity and get the best out of its employees. Incentives are rewards that are given when a certain goal has achieved. On the other hand perks are benefits that are given in addition to basic salary. Both incentives and perks can be financial or non-financial and also can be given to individuals or to a group. More explicitly, financial incentive schemes may include bonuses, profit-related and share option schemes, or a commission. As another option, non-financial or indirectly financial schemes may be formal awards, vouchers, gifts, company cars or extra holidays. Perks may include occupational pensions, health benefits, loans, extra holidays, membership of social clubs or an extra training beyond skills needed for job. USEFULNESS AND EFFECTS OF INCENTIVE SYSTEM

Incentives and perks are a very important staff motivator and should not be seen as a good payment. The benefits that a company has from an effective system of incentives are many and some of them are: Persuasion of staff to join the business, retention of the existing staff, increase of staff motivation, morality and loyalty, boost productivity, focalization of employees on achieving targets, teamwork building and a link between individual and business performance. All the above show that, incentive schemes are a very useful tool for leaders in any company. In order to be effective they must be design properly to the business that are going to be used and they must also be a correlation between the job and the incentive that has been chosen. They should be affordable from the company, transparent and they should increase the staff’s motivation. Like every tool, the use of incentive schemes has its positive and negative effects. In order to check the advantages and disadvantages, this tool will be classified in financial, non-financial, individual and group incentives.

Advantages: Workers are more focused on the target and they really try to reach the goal. Apart from that, a value is given to the achievement. Disadvantages: The direct incentive value of such schemes tends to be relatively weak and may not maintain staff’s interest as the link between daily work and bonuses may be distant. If the reward is not earned workers’ morale may be undermined. Non-financial

Advantages: There is recognition for employee’s priorities and lifestyle and can lead to a balanced work life. They also encourage the attachment to business. Disadvantages: They may be inappropriate because they may not reflect employee’s interest. The employees may not work at their best as some of them can be taken for granted. Individual

Advantages: Individual effort is considered and that leads to an encouragement in order to reach the goal. There is also a link between extra pay and extra output so, the more they try, the more they get. Disadvantages: Individual earnings can fluctuate and that creates a feeling of insecure. That also leads to a divisive behavior and team working fails. Group

Advantages: Team working and cooperation between the members of the group are encouraged. Also, individual underperformers are encouraged to improve in order to achieve the whole team its goals. Disadvantages: Individuals that are considered under-performing or not “fitting in” the team are pressured and may be bullied and harassed. Members of a high performing team are unwilling to move to other teams and that decrease flexibility between teams. On the other hand, some individuals may feel that their skills are undervalued.

In order to create an effective system of incentives and perks a company should not only base on the positive and negative effects that are mentioned above, but also it must take into consideration some other things. First of all, the scheme should be related to business needs and circumstances and it...
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