Employee Incentive Plans

Employee Incentive Plans

Brains, like hearts, go where they are appreciated. (Robert McNamara)

About Incentives

Employee incentives include the rewards above and beyond regular salary. During the late 1800s, Fredrick Taylor interpreted the theory of scientific management and the use of financial incentives. He believed employees engaged in something known as systemic soldering. They demonstrate the tendency to work at the slowest pace possible and to produce at the minimum acceptable level. Unconsciously, they strive for gaining different types of employee incentives.

Maxim of Individual Incentives

This law says that every individual has a different mindset, abilities, values, and needs. So every person reacts differently to different incentives. The HR managers must know two factors in this regard.

  • Employee requirements and preferences
  • Money is not the only motivating factor

Employee Preference for Cash Incentives

  • 40% of the employees enjoy a journey to the destination of their own choice.
  • 23% want free shopping at their favorite stores.
  • 19% needs home improvement grants or beautification items.
  • 10% want season tickets to their favorite entertainment venue.
  • 4% urge to have electronic devices, appliances, and gadgets.  

Types of Incentive Plans

  1. Individual Incentives

There are two main types of individual incentive plans.

Piecework Plans

Piecework is paying the worker a sum, or piece rate for each unit he or she produces. The advantage is that the plan is easily understandable. And the disadvantage is that there can be problems with the quality of product produced if the incentive is based on only the number of units created. Quality becomes a controlling factor for such incentives.

Merit Pay

It is the permanent collective increase in salary. The firm awards to an individual employee under a merit pay scheme. Salary increments depend on the performance of the employee. Combining financial rewards with non-financial ones produces performance improvements almost twice that of using each reward alone.

  • Incentives for Salespeople

Organizations that employ salespeople have to use different types of incentives to help them achieve targets.

  • Additional Salary
  • Pro-rata Commissions
  • Combination of both
  • Organization-wide Incentives
  • Profit-Sharing Plans are designated shares of profit divided among employees.
  • Under Employee Stock Ownership Plan the firm purchases shares of its stock for employees.
  • Gain Sharing is the incentive that shares gains with employees, resulting from cost-saving.
  • Executive Incentives are the same as incentives offered to other employees such as bonuses or stock options. For top management or executives, companies offer bigger bonuses and larger options of stock.

The companies offer different types of employee incentives catering to the organizational needs which include but are not limited to

  • Boost employees’ motivational level
  • Compensate the employees for their hard work
  • Create an exemplary organizational culture
  • Improve employee retention rate
  • Scale up the level of loyalty
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