Incentive Plans

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Incentive Plans
Incentive plans are compensation strategies that may encourage employees to increase their productivity and to perform beyond the general standards established by their companies. Researchers and HR professional identified 3 types of incentive plans: 1) individual; 2) group; 3) enterprise. One of the oldest individual incentive plans is known as piecework. Bohlander and Snell defined piecework as "an incentive plan under which employees receive a certain rate for each unit produced" (Bohlander & Snell, 2007, p. 442). Piecework's greatest advantage is that employees are paid based on their performances. However, piecework has several disadvantages. Piecework may not motivate employees especially when employees believe that the above average performance will provoke disapproval between the fellow coworkers. Furthermore, this plan does not apply for those situations "when quality is more important than quantity" (Bohlander, 2007, p. 443).
Group incentive plans (e.g. team compensation) differ from the individual ones as they encourage employees to cooperate each other in order to achieve companies' goals. Group incentive plans have several advantages, e.g. reducing jealousy between employees, learning new skills from others team members. However, group incentive plans has several disadvantages as well. Pushing each other to the limit to perform or the free-ride effect (when one team member is putting less efforts to succeed but he or she shares equally the reward with other team members) are a couple examples of intergroup social problems that may affect negatively such incentive plans.
The third type of incentive plan is known as enterprise incentive plan (e.g. Profit Sharing) which is defined as “reward employees on the basis of the success of the organization over an extended time period” (Bohlander & Snell, 2007, p. 458). Profit sharing has the advantage that it involves employees at the point that they may feel as partners in the enterprise.

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