WAGE INCENTIVE
Meaning and Definition of Incentives
Wage incentives simply called as incentives are monetary benefits paid to workmen in recognition of their outstanding performance . They are defined as " variable rewards granted according to variations in the achievement of specific results " . Incentives are the monetary benefits which are paid to workers as a reward of their excellent performance . Incentives are also known as payments by results . Incentive systems are tools to support the individual or group behaviour at work . A good quality incentive system also motivates the employees to be creative and innovative . It promotes a sense of loyalty among those employees who are competent and productive . Incentives can be monetary and non - monetary in nature .
According to Burrack and Smith , " An incentive scheme is a plan or programmes to motivate individual for good performance . An incentive most frequently built on monetary rewards , but may also include a variety of non - monetary rewards or prizes " .
According to Kemmerer and Thiagarajan , " An incentive is something that influences people to act in certain ways . An incentive system is a collection of incentives and a set of procedures for using them . Organisations use incentive systems to motivate their employees " .
Types of Incentive Schemes
The two different categories under which the incentive scheme / plan can be classified are as under :
1 ) Monetary Incentives : Monetary incentives are those incentives which are paid in the form of money or kind .
2)Non - Monetary Incentives : Non - monetary incentives are those incentives which are not paid in the form of money or kind . These types of incentives do provide any direct benefit to the employee . Although non - monetary in nature , these incentives play a role of motivation by stimulating the employees to work hard .
Individual Incentive Schemes
Most popular and universally accepted plans are individual incentive plans . These plans aim to achieve the that it actually awards the employee on the organisational objectives . The distinguishing feature of this plan basis of his individual performance .
According to L.G. Magginson , “ Individual incentives are the extra compensation paid to individual for all production over a specified magnitude which stems from exercise of more than normal skill , effort or concentration when accomplished in a predetermined way involving standard tools , facilities and materials those assignments where there is no interrelation or we can separate the work , then individual incentives are preferred " .
Group Incentive Schemes
Group incentive plans refer to those plans which are designed to inspire the group to generate more output . Usually , under individual incentive plans , each worker is paid bonus depending on his individual efficiency . It is not influenced by the efficiency of the other worker . Group incentive plans are used when it is difficult to analyse the performance of an individual or when an individual's performance is influenced by others . In such plans , bonus is paid collectively and is announced by the management before the beginning of work . It helps the team to work collectively and increase their output . On the whole , a definite performance standard is recognised and bonus is provided as per the performance standard
Advantages of Incentives
Main advantages of incentives are as follows :
1 ) Enhances the Productivity : The foremost benefit with the incentive system is the increased efficiency of the employee , which in turn increases the productivity of the organisation . For example , salespersons are given incentives based on their sales volume in many organisations . The incentives are a source of motivation for them to maximise their sales . Many organisations also give their productive employees a good amount of money in the form of bonus , in order to keep them motivated .
2 ) Promotes Safety at Workplace : Incentive system motivates the employees to work with all safety meastires , thereby avoiding any risk of life in the organisation . This in turn , makes the workplace more secure to work and at the same time also saves the organisational cost which could have incurred in case of any mishap .
3 ) Boosts Employee Morale : Incentives also infuses zeal and energetic attitude among the workers to contribute cheerfully for the achievement of organisational objectives .
4 ) Increases Employee Commitment : The incentive for high - quality work makes employees committed towards their organisation . Incentive system in any organisation shows that the employees as an asset , which in turn makes the employees , feel appreciated and valued . For example , if an employee does overtime for six months , then he should be given bonus for his efforts . Employees , if given rewards feel that organisation is appreciating their hard work , which in turn motivates them to work more hard than before and ensure their loyalty towards their organisation .
5 ) Accomplishment of the Set Targets : Employers can set rational goals and give rewards to their employees using an incentive system . Incentive system also helps the employee to achieve the set objectives of the organisation .
6 ) Decreases the Total Expenses of Organisation : The incentive system aims to reduce the total cost of an organisation , by motivating the employees to increase the efficiency and to reduce labour cost .
7 ) Decreases the Labour Turnover Ratio : It is quite evident that people would like to come to work and remain in the job for longer time - span , if their hard work is valued and appreciated . Ultimately , this kind of approach also reduces the labour turnover ratio .
8 ) Creates Team Spirit : Incentive system promotes better efficiency and production , reduces stressful work environment and facilitates in building team spirit among employees .
Disadvantages of Incentives
Incentives are disadvantageous because of the following reasons :
1 ) Leads to Increased Expenses : The quality of the product or service cannot be assured in the absence of strict and vigilant supervision . The process of strict monitoring and supervision increases the expenses of the organisation .
2 ) Increases Danger of Accidents : Sometimes , in order to earn the incentives , employees go beyond their capacity to perform and therefore avoid following safety rules . This increases the chances of accidents in the organisation .
3 ) Leads to Higher Labour Costs : Incentive systems usually incur more expenses on the labour , especially when they are being paid by the result , e.g. , paper - making and coal mining industries .
4 ) Creates Feeling of Jealousy among Workers : The workers who perform well are being rewarded exceptionally well , in comparison to those who are not able to perform well . This creates a feeling of jealousy among those workers whose performance is low .
5 ) Induces Fear in Workers : Incentives create a feeling of fear in the workers , in case any technological upgradation is implemented in the organisation . For example , introduction of new machine develops a feeling of fear among the workers that whether or not they will be able to produce high output as required for getting incentives while working with the new machines .
6 ) Standards are Based on Past Performance : Generally , the past performance is set as a benchmark to measure the actual performance of the worker which is not an easy task . Many organisations play safe by fixing a standard of performance , which is the average of performance in the past years , but it cannot be considered as a perfect basis of setting a performance standard .
