This document discusses incentives and performance-based pay. It defines incentives as monetary benefits paid for outstanding performance. The key points made are: Incentives motivate higher efficiency and output. They can increase earnings and standard of living while creating healthy competition. However, incentives can also lead to declining quality if workers prioritize output over quality. Setting appropriate rates and measuring performance are challenges. Incentives work best in labor-intensive manufacturing industries where output is measurable, as long as worker safety is not compromised and quality controls are in place.

1. Incentives and Performance-based
Payments
Group MembersDevender Kumar MB19
Dharmendra Yadav MB20
Durgesh Kumar MB88
Gaurav Jaiswal MB 33

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Content
 What is an incentive?
 Importance of Incentives
 Disadvantages of Incentives
 Prerequisites for Incentives
 Scope of Incentive systems

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What is an incentive?
Incentives are monetary benefits paid to workmen in
recognition of their outstanding or above standard
performance.
Incentives are defined as variable rewards granted
according to variation in the achievement of specific
result.

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Importance of Incentives
The primary advantage of incentives is the inducement
and motivation of workers for higher efficiency and
greater output.
 Earnings of employees would be enhanced due to
incentives. Increased earnings would enable the
employees to improve their standard of living.
Incentive schemes can also help to create a climate of
healthy competition within your organization

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The other advantages of incentive payments are –
 Reduced supervision
 Better utilization of equipment
 Reduced lost time
 Reduced absenteeism
 Increased output

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Disadvantages of Incentives
 Quality of products deteriorates in order to increase
output.
 To ensure quality, more inspection is needed, this involves
added expenses.
 Workers may oppose the introduction of new machines.
 Workers tend to regard their highest earning as normal
and press for higher minimum wage. Paper industry and
Coal mining are such examples.

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 If paid by results, workers disregard safety regulations in
order to achieve higher output.
 Workers keep on working in their lunch hour ignoring
health issues.
 Jealousy may arise among workers because some are able
to earn more than others.
 In case of ‘Group-incentive’ schemes, workers who are
fast in their work may be dissatisfied with those who are
slow.

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Difficulties faced
 Determination of standard performance.
 Setting of piece or bonus rate
 Risk of errors
Rates are set too low
Rates are set too high
If workers decide approximately how much they want
to earn and are, therefore, not interested in working for
the remaining part of the day.

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Ethical dimension
It is unjust to pay extra to the employees when they are
already paid their usual wages and salaries.
Incentives lead to corruption.
Output should be maximized through tapping the potential
and commitment of employees.

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Prerequisites for an Incentive System
Co-operation of workers.
(i)The methods followed in measuring the results or output
upon which payment is based.
(ii) The methods followed in setting wage rates for different
classes of work.
(iii) Appropriate safeguards concerning earnings, job security
and settlement of disputes over piece-work rates and allotted
time.

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Continued…..
Scientific work measurement.
Cover Indirect workers also.
Management commitment to the cost and time & assessed
properly.
Greater need for planning.

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In other safeguards Appropriate to the type of work & workers
 Closely linked to the efforts
 Able to calculate the reward
 Reasonable amount of control over their efforts
 Operate by means of a well-defined and easily- understood formula
 Properly installed and maintained
 Set and review specific objectives for each employee periodically
 Create incentives for performance and disincentives for nonperformance.

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Scope Of Incentive Scheme
Specially the Incentive scheme is being successfully
employed in:
1. The Labor-Intensive Manufacturing industries such as :• Textile & Metallurgical Industries.
• Leather & Rubber Manufacturing Industries.
2.
Large companies which can afford to employ the administrative
and engineering staff needed to ensure the efficient organization of
production, quality and measurement of work.

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Incentive schemes are difficult to apply in:
 Industries in which measurement of individual or group output is
rendered difficult or impossible either by technical consideration or
by psychological circumstances which might be prejudicial to
output.
 Industries in which the control of quality is necessary and is
particularly difficult, or in the case of certain classes of workers,
where high quality and precision of work is of prime importance.
 Industries in which the work is especially dangerous and is
particularly to ensure the observance of adequate safety precautions.

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