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.