PRESENTATION

ON
INDIVIDUAL INCENTIVE PLANS

By- Radhika (6)

 Incentives
• Financial rewards paid to workers whose
production exceeds a predetermined
standard.
 Classification of Incentives
 Direct Compensation : Pay in the form of wages,
salaries, incentives, commissions, and bonuses.
 Indirect Compensation : Pay in the form of
financial benefits such as insurance plans &
pensions.
 Incentives
Individual Incentive Plans

Group Incentive Plans

Organization-wide Incentive Plans

 Individual Incentive Plans
• In an individual incentive plan, the rewards of
incentives are based solely on individual
performance.
• It is an extra compensation paid to an individual
over a specified amount for his production effort.
• Such a system is feasible only where an individual
can increase the quantity and quality of his output by
his own individual efforts and where his output can
be measured.
 Piecework Plans
 The worker is paid a sum (called a piece
rate) for each unit he or she produces.
 Standard hour plan
 Standard Hour Plan is a plan that sets pay
rates based on the completion of a job in a
predetermined standard time.
 Merit Raises/Pay
 Merit raises are given on the basis of predetermined
policies.
 The employees are given raise on the basis of their
performance.
 The performance standards are set by the
organizations much in advance.
 Merit Pay links an increase in base pay to how
successful an employee achieved some
performance standard.
 Merit guidelines are the guidelines for awarding
these merit raises.
 Lum-sum merit pay is a program where
employees receive a year-end merit payment
which is not added to their base pay.
 Awards help employees to feel appreciated by
recognizing their productivity.
 Noncash Incentive Awards can be anything like
gym memberships or basketball tickets, etc..
 Bonuses
Bonuses are given to employees on a pre
established goal or criteria. The organizations set
policies regarding the bonuses. Usually bonuses are
provided during the festive season.
 Commissions
 Commissions may be used as a form of incentive
for salespeople.
 Those who work on commission typically receive
income based on a percentage of the revenue that
they generate, with no limitations placed on
potential earnings
 As a result, individuals who are highly motivated
by money may relish working on commission
since income is strictly tied to their productivity.
Advantages of Individual Incentive Plan
 The individual incentive plan rewards the individual
for his/her production. The more the worker produces,
the more the worker earns.
 The individual incentives appeal to the basic need for
money found in most people. Almost everyone will
work harder, up to a point, when there is a justifiable
reason to believe that increased Productivity will bring
about a personal gain.
 Disadvantages
 Jealousy and Individualism

 In individual incentive workplaces, each employee

is responsible for his own bonuses and benefits.
 This means that exceptionally productive
individuals with a large number of benefits or
bonuses may become the subject of jealousy from
co-workers.
 This can potentially produce a hostile work environment that is
uncomfortable to many.
 In addition, with everyone working for their own interests,
constructive teamwork may suffer in the pursuit of individual
benefit. In heavily teamwork based workplaces, this can be
highly detrimental.
Favoritism and Morale
 Individual incentive programs may also produce feelings
of a lack of objectivity and even favoritism, with
management staff.
 Employees that receive many rewards for their
performance may be perceived as receiving, whether
true or not, better work assignments than their peers, and
may appear to be the "boss favorite."
• This can contribute to a hostile work
environment and lower overall morale
throughout the workplace.
 Costs and Time Usage

 In large scale workplaces, individual incentive

plans can become time consuming and costly to
monitor, especially when large groups of
individuals work on the same product or station.
 Usually, an entire team of engineers must be hired to
monitor the pay scale and balance the system.
 The time spent and the extra expense, can be
extremely unappealing to employers, who might
instead opt for a group incentive program.
 Group Incentive Plans
 The earnings of employees are related to the
performance of a group or team.
 Team Compensation
 Team incentive plans are compensation
plans where all team members receive an
incentive bonus payment when performance
standards are met or exceeded.
 Gain Sharing
 Gain sharing incentive plans undertake those
employees who give outstanding performances and
provide for cost saving measures.
 Organizations believe in sharing the profits with the
employees who are responsible for producing those
results.
Advantages of Group Incentive Plans
• One of the biggest advantages of a group incentive
plan is its ability to promote teamwork.
• Since the entire group must meet a collective goal in
order to receive the incentive, individuals are more
likely to do what's best for the group in order to
reach that goal.
• This can encourage employees to share their
strengths and help one another as needed,
rather than staying focused on self interests.
 Disadvantages
 One major disadvantage of group incentive plans is the
possibility of perceived unfairness.
 Because members of the group are all to be
compensated in the same amount--regardless of
individual work levels--employees who work hard may
feel that they are being unfairly rewarded relative to co-
workers who get the same reward for what may appear
to be less effort.
• This can hurt long-term prospects for
teamwork, decrease individual motivation
and cause tension among members of the
group.