Prerequisites for a Good Incentive Scheme

‘Incentive’ may be defined as any reward of benefit given to the  employee over and above his wage or salary with a view to motivating him to  excel in his work. Incentives include both monetary as well as non-monetary  rewards. A scheme of incentive is a plan to motivate individual or group  performance.

Characteristics of good Incentive Scheme

It is true that monetary compensation does constitute very important  reason for the working of an employee. But this compensation alone cannot  bring job satisfaction to the workers. One cannot expect effective performance  from a worker who is dissatisfied with its job, even if he is well paid.  Sociologists and industrial psychologists also view that the financial aspect is  not the only dominant motivating force. Confidence in the management, pride  in the job and in firm and concern for the overall good cannot be brought by a  bonus. Hence the modern authorities on management science have recognized  the need for the provision of incentives to build up good morale.

Characteristics of good Incentive Schemes

A good incentive plan shall fulfill the following requirements:

  1. Trust and confidence — The success of any incentive plan depends on the  existence of an atmosphere of trust and confidence between the workers and the  management. In the absence of such an atmosphere, the workers may resist any  such proposal by the management.
  2. Consensus required — The management should not take a unilateral decision  while evolving an incentive scheme. Consensus between the workers and the  management is necessary for the success of the plan.
  3. Assured minimum wage — Payment to any worker should not be totally  related to his performance. Every worker should be assured of a minimum wave  notwithstanding performance. Only then the workers would have a sense of  security.
  4. No scope for bias or  favoritism  – The standards set under the incentive plan  should be based on objective analysis. It should not expect too much out of the  employee nor should it give scope for bias or favoritism.
  5. Simple to operate – The incentive plan should not involve tedious  calculations. It should be so simple that the worker will be in a position to work  out his total earnings himself.
  6. Beneficial to both the workers and the management – The incentive plan  should be beneficial to both the workers and the management. From the  management’s point of view, it should be cost effective. From the workers’ point  of view, it should offer return, at a rate higher than the normal rate of wages, for  the extra efforts made by them.
  7. Sound system of evaluation – A perfect system of evaluating the employees  performance should be created in the organisation. The results of evaluation  should be made known to the employees at the earliest.
  8. Redressing grievances – Grievances and complaints are bound to arise  whenever any incentive plan is in vogue in the organisation. Proper machinery  should be installed for the quick handling of all such complaints.
  9. Review – The progress of the incentive scheme should be periodically  reviewed. Only then it would be possible to notice and remove defects, if any, in  the plan.

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