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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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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.
