Advantages and Disadvantages of Incentive Schemes

Merits of Incentives

The following are the advantages derived by providing incentives to employees:

  • Higher output: By providing incentives to his employees, the employer is able to induce them to work better. This leads to higher output.
  • Greater profits: Needless to say, higher output results in greater profits for the business. This happens in two ways. First, the cost per unit becomes less and second, the enterprise is able to keep the selling price low and this results in greater sales.
  • No problem of idle time: In an organisation where no proper incentives are available for the workers, the tendency will be to while away the time. When suitable incentives are available, the workers become time conscious. They begin to see every minute in terms of money.
  • Supervision does not pose any problem: When suitable incentives are available, the workers become duty conscious. The need for close supervision, thus, does not arise.
  • Efficient workers are able to earn more: Such of those workers who are highly efficient are able to earn more by way of performance bonus, higher commission and so on.
  • Possible to identify inefficient and dull workers: If, in spite of the incentive schemes, some workers are able to earn only their normal wage, it should mean that they are basically dull. The employer, therefore, has to decide whether to retain them or subject them to rigorous training.
  • Rate of labor turnover is bound to be low: If adequate incentives are available to the workers, they may not have a feeling of dissatisfaction. Such workers are sure to have greater work commitment and therefore may not leave the organisation. The rate of labor turnover, as a result, is bound to be low.
  • Reduction in complaints and grievances: As the organization makes available suitable incentives to the workers, they may not have anything to complain about. This leads to reduction in complaints and grievances.

Problems Arising out of Incentives

The following problems are bound to arise while implementing an incentive plan:

  • Quality of work may suffer: The workers, those in the production department in particular, may give undue importance to the quantity of output produced neglecting the quality of output. Such a problem can be overcome only if the organization has a perfect system of quality control.
  • Inter-personnel relationships may suffer: Only those employees who are really efficient will be benefited out of incentives. This may promote ill-feelings among the employees of an organization.
  • Wear and tear of machines may be more: As the employees are keen on increasing the output all the time, they may handle the machines carelessly. This increases the wear and tear of machines.
  • Health of the workers may get affected: Some workers tend to overwork in order to earn more and this may affect their health.
  • Increase in accidents: There is always a preference to step up output disregarding even safety regulations and this may increase the rate of accidents in the workplace.
  • Increase in paper work: Proper administration of any incentive scheme involves lot of paper work. It necessitates the maintenance of proper records and books.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: [email protected]

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