Performance Incentive Plans

Performance incentives are payments made to an employee based on the amount of output or results achieved. It is a form of reward given to an employee or a group of employees for the purpose of motivating performances towards higher productive targets. This ideology is premised on the management principles of  Fredrick Winslow Taylor.
Objectives of performance incentive plans:
Incentive plans are designed and instituted to achieve the following basic objectives:

•  Developing a productive work environment in order to meet organizational goals and objectives.
• Stimulate contributions above and beyond the normal standard of expectation.
• Promoting greater achievement in terms of outputs or results.
• Rewarding individual differences in goal achievement and risk taking.

Various types of incentive plans are being used in organizations. Generally incentive system can be classified into three:

• Financial incentive for suggestion plans - Aimed at motivating the employees to come forward with suggestions that could lead to cost cutting improvement in the level of productivity
• Incentives plans for production and sales persons - that it may be based on individual effort or group efforts.
• Executives’ financial incentives are given to top level managers and executives for performance that result in better organizational output and efficiency.

The major performance incentive plans used in organization are the plans for production, operation, sales and marketing personnel.

• Bonus Plan Incentive: Focuses on rewarding higher performers either as individual or as a group of workers for their excellent performances.
• Profit sharing scheme
• Employee’s stock option: Increase in output and profit is translated to tock( shares) for the employee.
• Scanlon Plan: under this plan employees agree to enhance and promote efficiency, seek got ways of cutting costs and bring in ideas that could lead to more profitability, then agree on how to share the gains resulting from increased efficiency.
• Piecework plan: Employees are assured of  standard pay rates for each unit of output produced. Each job also has an hourly-base rate.
• Standard hour bonus