Incentives

An ‘incentive’ or ‘reward’ can be anything that attracts an employees’ attention and stimulates him to work. An incentive scheme is a plan or programme to motivate individual or group performance.

An incentive programme is most frequently built on monetary rewards (incentive pay or monetary bonus), but may also include a variety of non-monetary rewards or prizes. Incentives are needed to increase the productivity of the labourers as also to reduce cost per unit of labour. It is gainful for both the labourers as well as employers to give incentives.

According to Milton L. Rock, incentives are defined as ‘variable rewards granted according to variations in the achievement of specific results’.

According to K. N. Subramaniam, ‘incentive is system of payment emphasizing the point of motivation, that is, the imparting of incentives to workers for higher production and productivity’.

The National Commission of Labour defines incentive as follows: ‘wage incentives are extra financial motivation. They are designed to stimulate human effort by rewarding the person, over and above the time rated remuneration, for improvements in the present and targeted results’.

Types of incentives

Incentives can be classified into three categories:

1. Financial incentives

Some extra cash is offered for extra efficiency. For example, profit sharing plan and group incentive plans.

2. Non-financial incentives

When rewards or prizes are provided by the organization to motivate the employees it is known as non-financial incentives.

3. Monetary and non-monetary incentives

Many times, employees are rewarded with monetary and non-monetary incentives that include promotion, seniority, recognition for merits, or even designation as permanent employee.

Advantages of incentive Plan

1. Incentive plans motivate workers for higher efficiency and productivity.
2. It can improve the work-flow and work methods.
3. Incentive plans make employees hardworking and innovative.
4. When employees are dedicated, supervision costs can be reduced.
5. The National Commission on Labour says that under our conditions, wage incentives are the cheapest, quickest, and sure means of increasing productivity.
6. Incentive plans help establish positive response in an organization.
7. It helps workers improve their standard of living.
8. The other benefits offered by incentive plans are reduced turnover, reduced absenteeism, and reduced lost time.

Disadvantages of Incentive Plan

1. Incentive plans can lead to disputes among workers, since some earn more than others.
2. Hunger for money among the workers forces them to overwork, which may affect their heath.
3. Some workers may involve in malpractices in order to earn more money.
4. For enhanced incentives, they may sacrifice quality.
5. It also leads to corruption by falsifying the production records.
6. Incentive plans can create tensions among different personnel.

Employers use incentives to promote a particular behavior or performance that they believe is necessary for the organization’s success. For example, a software company provides employee lunches on Fridays to promote teamwork across departments and functional areas.

The lunches are also an excellent opportunity to brief employees on company progress outside of their assigned areas. They also use the lunches to provide necessary information to employees or for employees to present to their coworkers on hobbies and interests—all of which contribute to staff members knowing each other better.

They are used for reasons such as to:

• Increase productivity.
• Retain employees.
• Attract and reward high achievers.
• Thank employees for reaching and exceeding goals.
• Encourage teamwork.

Reward and recognition activities that are transparent work to build trust with employees. If the reward criteria or the recognition process are kept a secret, if they appear to only recognize pet employees, or if they are arbitrary, you risk alienating and demoralizing employees.

Consequently, for the successful use of incentives, employers need to:

• Make sure that all employees understand the objectives the employer has in offering incentives.
• Ensure that the criteria for obtaining the incentives are clearly spelled out.
• Communicate the specific criteria to all employees. Provide examples so that employees understand what you are seeking and share your picture of success
• State the timeline and allow a certain amount of time for employees to accomplish the actions that you’d like to see when you communicate the incentives criteria.
• Reward every employee who achieves the expectations.
• Tell the employees exactly why their contribution made them eligible to receive the incentive.
• You can magnify the power of the incentives you provide by writing a letter to the employee that provides thanks to him or her for their contribution. You can also announce all of the recipients of the incentive at a company meeting and personally thank each recipient.