Incentive compensation plans are designed to motivate employees to higher levels of performance beyond their base salary. Such plans tie additional earnings to metrics like productivity, revenue generation, and collaborative team goals. When implemented effectively, incentive plans can increase employee loyalty, reduce turnover, improve processes, and foster innovation as employees work to maximize their earnings. However, incentive plans also carry risks and may have unintended consequences if not carefully designed and monitored.

1. IT’S ADVANTAGES &
EFFECTS

2.  Incentive compensation is the
supplementary money an employee makes
for a certain level of performance on top of
their regular base salary.

3.  MOTIVATION:
These were created for the express
purpose of urging employee to motivate
themselves to higher achievement level.
The to the employer is increased level of
productivity.

4.  INCREASED EARNINGS:
More incentive plans are tied to earnings.
The more revenue an employee generates
for a business, the more he is rewarded
through his incentive plan. Business
providing incentive plans have the
advantage of being their bottom line rise
in direct proportion to the sales their
employee generates.

5.  LOYALTY:
Employees who have the ability to
positively impact their earning potential
through incentive plans are more likely
to be loyal to the company they
represent. This is especially true if
incentive plans have residual value.

6.  REDUCED TURNOVER:
Employee often took for new employment
opportunities when they feel they are
under-compensated or unappreciated.
Incentive plans are a way of rewarding
top performing employees and showing
them you appreciate their contributions
to the business.

7.  COLLABORATIVE EFFORTS:
When employees work together on team
incentive plans, they establish a sense of
camaraderie, pulling together for
common good.

8.  IMPROVEMENTS:
A wage incentive plan brings about
improvements in methods, work flow,
man-machine relationship and so on.

9.  SMOOTH FLOW:
Employees promptly expose problems
before management which their earnings.
Management becomes more alert in areas
like, flow of process materials , adequate
spares, etc.

10.  INVENTIVE EMPLOYEES:
Employees are encouraged to become
‘INVENTIVE’ . They invent and adopt
ways and means to achieve their
production targets with lesser exertion
and lesser expense of energy. They come
forward with new ideas and suggestions.

11.  INDUSTRIAL RELATIONS:
Incentive tool used for improvement in
discipline and industrial relations. Go-
slow and similar other techniques are not
resorted to by the workers to express
their dissatisfaction with management
policies and practices. Incentive increase
in worker’s punctuality and decrease in
absenteeism.

12.  REDUCTION IN SUPERVISION COSTS:
Incentive provides effective reduction in the
supervision costs. Closer supervision of employees
becomes unnecessary workers become more
responsible rather than the supervisor chasing the
workers. Sometimes, workers themselves chase the
supervisor for material, tools, etc.

13.  Incentive compensation is not an unmixed blessing. It may produce
certain ill-effects unless precautionary steps are to check them in
advance.