Incentive system and linkage to compensation

Types of Incentives
Positive versus Negative Individual versus Organization wide Financial versus non-financial

Prerequisites for Effective Incentive

Adequate competitive floors in basic commitment and fringe benefits Significant individual or group effect on performance Measurable performance Reasonable time span Commitment of the top management A salubrious climate

Advantages of Incentives
Increased expectancy of reward on performance Perception of equity due to input-output balance Behavior Modification Objective ratings are more acceptable

Limitations of Incentives
Perception of equity offset by perceived inequity Human problems Administrative problems

Individual Incentive Systems

Payment by time Payment by output

Measurement techniques
Past performance Bargaining between union and employer Time study Standard data Predetermined elemental times Work sampling

Types of Individual Incentive Systems

The Measured Day-Work Incentive System Piece-Work System Standard hour or 100 Percent Bonus System Gains Sharing System

Prerequisites to the Individual Incentive System

Standardized work and uniform working conditions Clearly defined and precisely measurable units of production Independent production processes Uniform supply of material and exclusive control of the work

Prerequisites to the Individual Incentive System contd..

Normalized standards Chance to earn substantially high incentives Review and revision of standards and rates Help from professionals Alignment of managerial philosophy with high earnings of human resources Easy to understand system

Advantages of an individual incentive system

For employer
Predetermination of production and labour cost Minimisation of absenteeism and tardiness Enhanced creativity in work Removal of inefficient workers Enhanced productivity and decreased per unit cost of production

For employee
Possibility of increasing earnings in direct proportion to efforts Direct and immediate financial rewards Enhanced knowledge and efficiency

Disadvantages of an individual incentive system

For employer
Encouragement to sacrifice quality for quantity Conflict with labour Stress upon workers initiative at the cost of human relationships Rigidity of rates Impractibilty in new operations

For employee
Adverse effects on health Increased feeling of insecurity and emotional strains Dangers of rate cutting

Organizational Incentive Systems

Cooperation among employees, management and union Accomplish broader objectives

Organizational Incentive Systems

Types: The Scanlon Plan The Kaiser-United Steel workers Plan Profit Sharing

Non-Financial Incentives
RABBLE HYPOTHESIS: The assumption that employees only respond to money (employees are treated as a group of unrecognized rabble, insensitive to the social motives of approval and self-respect)

Non-Financial Incentives
Types Improved Attitude Supervisory Relationship Advancement and Security Supervision Job Satisfaction and Enrichment Praise and Blame