Question

what are the objective of incentive plan? Explain the conditions necessary for successful operation of incentive scheme?

Answer 1

Objective of Incentive plan:

1. Productivity: Incentives are offered to make employees work and reach targets. Therefore they increase productivity.

2. Morale: It is often noticed that employees show signs of fatigue from continuous work; it declines their morale. Incentives work to decrease the fatigue and thereby increase morale of the employees.

3. Profit: Increased productivity and enhanced morale directly or indirectly contribute towards increased cash inflows thereby increasing profit of the firm.

Conditions necessary for successful operation of incentive scheme?

1. Incentives must be clearly defined. There should be no confusion over its implementation. Issues such as targets, percentage etc. should be clearly defined without any ambiguity.

2. Incentive plans must be achievable; they must not be over highly ambitious but realistic. For instance an employee who has achieved 10% extra targets must be offered incentives for achieving 15% extra.

3. Incentives must be proportionate to the inputs. They must reflect the efforts and skills utilized in achieving targets.

4. Incentives must be designed in such a way that they can be tracked and measured.

5. Incentives must be based on wants and needs of employees. In other words desirability of employees is important in deciding incentives. For instance, if employees want paid holidays as incentive; then incentives in the form of cash will not work.