An incentive plan refers to a program designed by an organization to reward employees. Incentive plans provide various benefits to employees when they achieve specific goals and objectives set by the organization. According to Gostick and Elton, incentive plans are usually used by executive managers to encourage desirable behaviors of employees within the organization (2009).
Organizational incentive plans are often used as motivational techniques to inspire employees to work harder towards the achievement of organizational goals and objectives. Gebauer, Lowman and Gordon (2008) suggest that incentive plans can also be used in sales and marketing to attract customers.
Chikarovski and Costello refer to incentive plans for employees as pay for performance (2011). Incentive plans usually encourage and stir up employee loyalty and commitment to realization of organizational goals.
Due to increased competition within the labor market, development and implementation of appropriate incentive plans for employees has become one of the greatest challenges that most organizations face today. Increased competition amongst businesses to attract and retain high profile employees has made it difficult for organizations to formulate appropriate incentive plans that would enable them to effectively achieve their goals. It is thus important for organizations to ensure that appropriate incentive plans are put in place to attract and motivate employees.
For an incentive plan to be effective, it must provide adequate motivation for the employees or the targeted party (Lawler, 2010; McCoy, 2009). The rewards or benefits of an incentive must also be provided at regular intervals in a progressive manner based on the performance of employees. Furthermore, incentive plans should be exercised without any bias or favoritism.
Effectiveness of Organizational Incentive Plans
Within our organization various incentive plans have been put in place by the executive management so as to motivate employees. Some of these incentive plans include recognition, bonus pay, sales commissions, and non-monetary rewards.
Recognition refers to the process of identifying and rewarding employees with outstanding performances. It also includes positive recommendations given to an employee based on his or her unique contributions to the organization.
In my opinion, recognition has helped in creating a healthy workplace environment. This has eventually led to increased retention of more competent employees. Through recognition, effective communication between the executive management and junior employees has been enhanced. This has resulted into free sharing of information and ideas between the top management and staff members. Consequently, more innovative ideas have been generated, developed, and implemented by the organization. For example, development of a management information system (MIS) was proposed by a junior employee in the administration department. Consequently, the organization was able to achieve its goal of adequate storage, retrieval, and access to well organized data to facilitate quick decision making within the company. Moreover, special recognition programs have been developed to help the organization achieve its objectives.
Bonus pay refers to various incentive programs designed to encourage employees to work extra time. Through the bonus pay plan, employees are given additional pay for extra time worked. Bonus pay is usually awarded in form of cash payments to employees, usually added to the basic salaries. The use of bonus pay has helped the organization achieve high levels of production, especially when the demand for products has hiked. Usually, an increase in demand for goods and services required urgent increase in production. Through use of the bonus pay, the organization has effectively met such increases in demand without necessarily increasing the production capacity through buying additional machinery.
The organization also uses sales commissions to motivate marketers and sales agents. This involves provision of extra pay for every unit sold beyond a certain limit set by the organization. For example, a marketer who sells goods worth more than two thousand U.S. dollars is usually given a commission of 10 percent of extra sales. In my opinion, the use of sales commission has helped the organization in motivating salespersons. This has resulted into an incredible increase in sale volumes. In addition, since the sales volume is usually high, fewer goods go bad hence decrease in waste and losses.
Non-cash incentives refer to rewards offered to employees that are not monetary in nature (Nelson, 2011). Non-cash incentives include vocational trips, trophies, certificates, and promotions. The organization effectively used non-monetary rewards to motivate elderly employees who do not value money but rather recognition, for example, a long serving employee aged fifty years would prefer to be promoted to a higher rank than to have his or her salary increased.
In my view, the organization has effectively used non-cash incentives to motivate employees who are ego-oriented thus need recognition and self-actualization. This has resulted into improved performance of elderly employees.
In general, I would argue that use of incentive plans has enabled the organization to achieve its goals and objectives due to greater employee motivations and empowerment, which consequently leads to improved productivity. These plans have also helped in reducing employee turnover, absenteeism, idle time and cost of production per unit. Moreover, incentive plans have made it easy to assess and evaluate performance of individual employees. Less productive workers have also been encouraged to work harder.
However, McCoy and the American Management Association warn that incentive plans may have negative impacts on the organization if not properly used (2011). For instance, they may encourage favoritism at the workplace. They also lead to increased supervision to regulate the quality of work done by employees. An organization may also experience difficulties in fixing appropriate standards for incentive plans.
In my opinion, although cash payments can be the best incentives for employees, non-monetary incentives are equally important and can be highly effective in motivating employees. Organizational incentive plans must be able to encourage effective communication and relationships among members of the organization. Such plans should help in building strengths of individuals and teams. Moreover, incentive plans should attract, instigate, and maintain hardworking employees within the organization.
In addition, an effective incentive plan must focus on organizational goals and objectives, for example, attainment of change management goals.
Last but not least, the organization must identify various factors that may positively influence behaviors and conducts of employees to ensure effective execution of incentive plans.