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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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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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Q: Is money the only motivator? What is your motivator? Lets see an example of non-cash incentives..

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Employee Preferences for Noncash Incentives

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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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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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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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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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ORGANIZATIONWIDE INCENTIVES PLANS AND INCENTIVES FOR MANAGERS AND EXECUTIVES

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ORGANIZATIONWIDE INCENTIVE PLANS

Profit-sharing plans. Employee stock ownership plan(ESOP). Gain sharing plans. At risk variable pay plans.

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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 companys earnings.

Cash plans.

Lincoln incentive plans.

Deferred profit-sharing plans.

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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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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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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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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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Incentives for Salespeople

Salary Plan
Straight salaries
This type of plan is Best for: prospecting (finding new clients), account servicing, training customers 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 salespersons income. Can increase turnover of salespeople.

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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 Plans

component service activities.

covers

company-specified and

tend to become complicated, misunderstandings can result.

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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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Team/Group Incentive Plans

Team (or Group) Incentive Plans
Incentives are based on teams performance.

How to Design Team Incentives

Set individual work standards. Set work standards for each team member and then calculate each members 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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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 individuals effort

Rewards free riders

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