The document discusses different types of incentives that can be used to motivate employees, including financial incentives like profit sharing plans and stock ownership plans as well as non-financial incentives. It also covers incentives for specific groups like salespeople and managers, and explores the benefits and drawbacks of individual versus group incentive structures. The overall purpose is to analyze various incentive programs that can be implemented within an organization to improve performance.

1. Page 1

2. Introduction
Incentives are variable reward granted to employees
according to variations in their performance. Financial rewards paid
to workers whose production exceeds a predetermined standard.
 Payment by result
 Achievement of specific result
 Motivational context
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3. In short, total reward programmers', which integrate
both financial and non-financial incentives to reward staff, can offer
an organization the building blocks to help incentivize, recognize
and motivate employees to deliver improved levels of performance.
Incentives are the additional payment to employees
besides the payment of wages and salaries. Often, these are linked
with productivity, either in terms of higher production or cost saving
or both.
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4. Q: Is money the only motivator?
What is your motivator?
Let’s see an example of non-cash incentives…..
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5. Employee Preferences for
Noncash Incentives
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6. Importance
• Higher efficiency
• Greater output
• Positive response
• Improve standard of living
• Reduction in total as well as unit cost of production
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7. Advantages
• Reduce supervision
• Reduce absenteeism and turnover
• Increased output
• Improved recruitment of better-quality staff.
• Improvements in business performance.
• Reinforcing appropriate behavior.
• Reinforced commitment through allowing employees choice
over what they want from their employer
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8. Disadvantages
• Checking & inspection expenses
• New machines and models
• Jealousy and conflict among workers
• Difficulties in determining standard performance
• Spoil workers health
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9. Prerequisites for an effective
incentive system
• Co-operation of workers
• Scheme must be based on scientific work measurement
• Indirect workers must be covered by incentive scheme
• Greater need for planning
• Appropriate to the type of work
• Operate by means of well defined and easily understood
formula
• Make sure the program is motivational
• Make the incentive plan committed oriented approach
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10. ORGANIZATIONWIDE INCENTIVES
PLANS
AND
INCENTIVES FOR MANAGERS AND
EXECUTIVES
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11. ORGANIZATIONWIDE INCENTIVE PLANS
Profit-sharing plans.
Employee stock ownership plan(ESOP).
Gain sharing plans.
At risk variable pay plans.
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12. PROFIT SHARING PLANS
A plan that gives employees a share in the profits of the
company. Each employee receives a percentage of those profits based on
the company’s earnings.
Cash plans.
Lincoln incentive plans.
Deferred profit-sharing plans.
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13. EMPLOYEE STOCK OWNERSHIP
PLAN(ESOP)
A qualified, defined contribution, employee benefit plan designed to
invest primarily in the stock of the sponsoring employer. ESOPs
are "qualified" in the sense that the ESOP's sponsoring company, the
selling shareholder and participants receive various tax benefits. ESOPs
are often used as a corporate finance strategy and are also used to align
the interests of a company's employees with those of the company's
shareholders.
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14. GAIN SHARING PLAN
Establish general plan objectives.
Choose specific performance measures
Decide on a funding formula.
Choose the form of payment.
Decide how often to pay bonuses.
Develop the involvement system.
Implement the plan.
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15. AT-RISK VARIABLE PAY PLAN
Variable pay is used to recognize and reward employee contributions to
the company's success. Examples include: profit sharing, bonuses and other
benefits.
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16. INCENTIVES FOR MANAGERS AND EXECUTIVES
1) SHORT TERM INCENTIVES:
Annual bonus
Eligibility
Fund size
2) LONG TERM INCENTIVES
Stock option
Stock option problems
Broad based stock options
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17. Incentives for Salespeople
 Salary Plan
– Straight salaries
• This type of plan is Best for: prospecting (finding new
clients), account servicing, training customer’s sales force,
or participating in national and local trade shows.
 Commission Plan
– Pay is a percentage of sales results.
• Keeps sales costs proportionate to sales revenues.
• May cause a neglect of no selling duties.
• Can create wide variation in salesperson’s income.
• Can increase turnover of salespeople.
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18.  Combination Plan
 Pay is a combination of salary and commissions,
usually with a sizable salary component.
 Plan gives salespeople a floor (safety net) to their
earnings.
 Salary component covers company-specified
service activities.
 Plans tend to become complicated, and
misunderstandings can result.
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19. Specialized Combination Plans
 Commission-plus-Drawing-Account Plan
 Commissions are paid but a draw on future
earnings helps the salesperson to get through low
sales periods.
 Commission-plus-Bonus Plan
 Pay is mostly based on commissions.
 Small bonuses are paid for directed activities like
selling slow-moving items.
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20. Team/Group Incentive Plans
• Team (or Group) Incentive Plans
– Incentives are based on team’s performance.
• How to Design Team Incentives
– Set individual work standards.
– Set work standards for each team member and then
calculate each member’s output.
– Members are paid based on one of three formulas:
• All receive the same pay earned by the highest producer.
• All receive the same pay earned by the lowest producer.
• All receive the same pay equal to the average pay earned by
the group.
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21. Pros and cons of group Incentives
 Pros
 Reinforces team planning and problem solving
 Helps ensure collaboration
 Encourages a sense of cooperation
 Encourages rapid training of new members
 Cons
 Pay is not proportionate to an individual’s effort
 Rewards “free riders”
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