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Pay-for-Performance/Incentive schemes (Importance (Motivational tool,…
Pay-for-Performance/Incentive schemes
Definition
An incentive scheme can be defined as a formal plan designed to encourage or promote specific behavior or action by the target group during a specified period of time.
Importance
Motivational tool
Promoting teamwork
Morale boosters
Service levels
Types
Individual-based
Merit pay
Lump-sum bonuses
Piecework plan
Straight piecework plan
Standard hour plan
Commission
Base salary plus commission
Straight commission
Draw against commission
Team-based (Group)
Goal-based incentive
Merit-based incentive
Company-wide
Profit sharing
Current plan
Deferred plan
Combination plans
Employee stock ownership plans
Gainsharing
Scanlon plan
Improshare
Rucker plan
Advantages & Disadvantages
Individual-based
Advantages
Relate pay to performance of individual (encourage maximum effort)
Help retain best performers
Motivate other employees
Provide equitable distribution of compensation
Disadvantages
Factors not rewarded may be overlooked
Factors not in the employee’s control might impact outcomes
Establishing performance standards is time-consuming
Unrealistic standards can hamper motivation
Can lead to mistrust between workers and management
Lack of teamwork
High turnover potential (if they don’t perform, earnings diminish so employees may leave the organisation to look for jobs with stable pay)
Team-based (group)
Advantages
Improve organisational performance
Based on organisational measures
Periodically measured
Build a stronger team (foster relationships between employees)
Positive peer pressure (employees know they each must pull their own weight in order for the team to be successful, which can prevent slacking or underperformance)
Disadvantages
Low-performing employees may feel pressure from both the boss and their colleagues to perform at levels above their comfort zone
High performers may feel that they are doing all the work for the same amount of reward as their less-motivated colleagues