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.

Advantages and Disadvantages of Incentive Schemes

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.

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