Prerequisites of an Effective Incentive System

Prerequisites of an Effective Incentive System

• A good incentive plan should be simple, clear and easy to operate. An average worker should know the linkage of pay for performance.
• There should be active participation of workers and union while installing incentive plan.
• There must be a commitment on the part of the top management to the incentive program.
• The incentive plan should reward employees in direct proportion to increased productivity or quality.
• An incentive wage plan must be fair and equitable to both employers and the employees. It should be motivating to employees and economical to the management.
• The standards of performance and criteria for measurement should be fair, clear and aligned with firm’s strategy and objectives.
• There should be proper communication of details of the scheme to all the concerned persons.
• There should be a supportive environment from the employees for the scheme as any restriction can undermine the plan.
• The incentive plan should be in consistent with the corporate’ culture.
• The time gap between actual performance and reward should be as small as possible.
• There should be an atmosphere of mutual trust and understanding between employer and employee.
• A minimum wage rate should be guaranteed to every worker irrespective of his performance. It increases sense of security among workers.

A sound incentive plan should have the following essentials or requisites.

1. Simplicity: The incentive plan should be simple. It should be so simple that even an ordinary worker must be in a position to understand the contents of the scheme and must be able to calculate his earnings.
2. Plan should guarantee minimum wage: Incentive plan adopted must guarantee the minimum wage to all the workers irrespective of their working performance so as to ensure them a sense of security and confidence.
3. Worker’s Participation: Incentive plan should be accepted only after taking into confidence the workers and their union. Workers involvement ensures smooth flow of work.
4. Economical: The plan should be economical involving less clerical work. The benefit of the scheme should exceed the cost of operation of the scheme and plan should not involve elaborate records and complicated calculations.
5. Equitable: The plan should be fair, equitable and should cover all the employees. It must give equal opportunities to all workers to earn their wage incentives.
6. Clear understanding: The objectives of the scheme should be made known to all the employees so as to seek every employee’s co­operation.
7. Prompt payment: Wage incentives should be paid promptly whenever it has become due for payment. If the payment is delayed, workers may lose the faith in the scheme.
8. Conducive to workers health and safety: The plan should encourage the workers to earn adequate wages. The scheme should not over strain them which may tempt the workers to work hard to earn more which in the long run may affect on health of the workers.
9. Flexibility: The plan should give scope for making changes in accordance with the change in demand, market condition and government policy. Adjustability should be the glaring feature of sound incentive plan.
10. Fixation of Standard: For the purpose of payment of incentives, the standard fixed should be scientific and must be capable of reaching the standard by majority of workers without much strain.
11. Grievance Procedure: The plan should have effective grievance procedure to deal with complaints and dis-satisfaction of workers.
12. Performance Appraisal: There should be proper system of appraisal of the performance of employees so as to check the quality of output and to give guidance to the workers for improvement.