Incentive pay categories:

Individual incentives:

Definition

It is a type of incentives where the worker gets paid on the basis of individual objective
performance (e.g., physical output in terms of number of pieces produced). The payment could
either be directly related to performance, meaning that the employees get paid as much as they
perform, or affect only a performance‐related bonus in addition to a fixed wage or salary.

Plans Within

Piece-rate (Piecework):

It is an individual incentive plan, where the worker is paid for the work he/she did. The
payment here is related directly to the number of units produced.

Management Incentive Plans:

Management incentive plans apply to managers. In this kind of incentive, the bonuses are given
to top management (CEO, CFO …) for exceeding organization goals. The potential payout
associated with any Incentive Award under the MIP will be expressed as a percentage of a
Participant’s annual base salary, and the amount of any such payout shall be contingent upon the
degree to which one or more pre-established, objective Company or business-unit performance
goals have been achieved over the applicable performance period. Annual Participant incentive
targets are communicated at time of plan eligibility.[ CITATION www1 \l 1033 ]
Behavioral Encouragement Plans:

In this type of plans, Incentives are directly linked to the employee’s behaviors, values, or
aspirations. This strategy for tailoring incentives builds on strong evidence that difficult
behavior changes are more successful when integrated with important life goals and values.

[ CITATION www2 \l 1033 ]

Referral Plans:

A referral program is a system that rewards employees for sending paying clients to your
company, or recruiting successful employees for available job positions. It is common for service
companies like real estate brokerages but also works for companies that sell tangible items, like
makeup and fashion products. ( Louise, 2017)

Spot Bonuses:

Here, bonuses are rewarded to employees when they do an extraordinary performance. This
bonus is limited in a specific time frame; the excellent performance has to be done due this time.

Advantages:

 Rewarding employees for their good performance will motivate them to work harder,
whenever an employee is rewarded for the performance, other underachiever
employees will work harder to gain bonuses too.
 The organization is going to be more competitive because the performance of
employees is getting better.

Disadvantages:

 A competitive atmosphere will be created, but each employee will think about
performing the best for him/her as individual; thus, teamwork will be lost.
 Employees, who aren’t reaching a high performance level, won’t be helped by
experienced employees; they will not be rewarded, thus, they will be demotivated.
 Employees making unethical choices and cutting corners with their work in order to
receive incentives. (Lindsay, 2019)
Group incentives:

Definition:

The group incentives are pay for performance plans that is based on the performance and
outcomes of the whole working group. It is established because in most firms, nowadays,
teamwork is very important and it’s becoming hard to measure the performance of each
individual alone. It is determined by a team’s achievement beyond a certain target, or a
division’s success in completing a project. Measures of performance may include a number of
indicators from output, to rejects, to time down for equipment repairs, to customer complaints or
praises.

Plans Within:

Gainsharing:

Gain-sharing plan is an incentive plan that enables employees to share in the benefits of

improved productivity through periodic bonus payments. [ CITATION Edw13 \l

1033 ]. Example- Scanlon plan aims at cost cutting and increasing efficiency of operations
and sharing the gains with employees. It also includes suggestion scheme for cost-cutting.
Rucker plan is similar to Scanlon, but uses another formula.

Goalsharing:

Ii is related to gainsharing but often is not financially driven. Instead of focusing on

productivity gains, a goalsharing program establishes goals that support the organization's

mission – goals such as improved customer satisfaction or improved program effectiveness.

[ CITATION www \l 1033 ]

Team-Based plans:

A team-based incentive is a compensation program that links payments to achieving an

organizational specific objective.

Advantages:

 Group incentives inspire collaboration and teamwork.

 It encourages more-experienced employees to mentor the less-experienced ones.
 Group incentives will make the employees feel all responsible for the performance and
results.

Disadvantages:

However, Group incentives also have disadvantages, especially when it is not implemented
well:

 They include creating an environment where employees blame each other for failure to
meet goals, making high-achieving employees resentful of their lower-achieving
colleagues and newer employees feeling pressured to meet goals beyond their capability
levels. (Lisa, 2017).
 Some employees will not be comfortable working with others who are less performing
and lazy.

Organization-Wide incentives:

Definition:

The employees are rewarded on the basis of the success of the organization over a specified
time-period. Those plans develop a sense of belongingness, co-operation, understanding and
teamwork among employees.

Plans within:
Profit Sharing:

Profit sharing involves the determination of organization's profit at the end of the financial year
and the distribution of a percentage of the profits to employees, qualified to share the earnings.
Profit sharing is an additional payment over and above regular salary payment.

Employee Stock Plan:

In employee stock plan, employers provide employees company stocks. [ CITATION

Edw13 \l 1033 ]. The principle of stock plan is to let employee add value to the
company and benefit from it. It is a form of compensation, which enables the employees to
purchase shares of their company and gain from possible rises.

Advantages:

 Attract and retain promising employees.

 It commands employee loyalty.
 Create wealth for employees without involving large cash flow to the company.
Disadvantages:
 When an employee dies or retires, the company must spend money to purchase his stock
from him; that’s more costs.
 When an employee leaves the company, he is not forced to give back his stocks. He can
still have some voice in company decisions, and he will receive the value of his stock when he
retires. (Ronald, 2017).
 Difficult and expensive to implement.
References:

[ CITATION www \l 1033 ]

[ CITATION ope \l 1033 ]

Edwinah A., Christine N. (2013) Effective Reward and Incentive Scheme for Effective
Organizations, Research Journal of Finance and Account. Vol 4, No. 13.

Lisa M. (2017), Types of Financial Rewards & Incentives. 26 September.

Lindsay K. (2019), Individual vs. Group Incentive Plans. 20 June.

Fraser Sh. (2019), Advantages & Disadvantages of Individual Incentive Plans. 4 June.

Paul S. Peter R. Annette C. (2008), Group reward strategies.

Ronald K. (2017), ESOP Disadvantages.26 September.

Monica F-S., Luis G-M (2015). Team-based incentives: Creating a Culture of Collaboration,
Innovation, and Performance.

[ CITATION www1 \l 1033 ]

[ CITATION lib \l 1033 ]

[ CITATION www2 \l 1033 ]

Louise B., (2017), How to Build a Referral Program. 26 September.

Incentives are effective motivators when the objectives to be met are clearly stated upfront
and when the incentives offered are desirable. Gone are the days when one type of incentive,
such as money or a pat on the back, worked for everyone. A company that provides various types

of incentives, tailored to individual workers, motivate employees to consistently do their best.

[ CITATION Ran18 \l 1033 ]

Profit sharing plans:

Profit sharing plans pay apportion of company profits to employees, separate from base pay,
cost-of-living adjustments, or permanent merit pay increases. Two basic kinds of profit sharing

plans are used widely today. [ CITATION Ran181 \l 1033 ]

 First, current profit sharing plans award cash to employees. Typically on a quarterly or
annual basis. Current profit sharing represents a form of short-term incentive because of the
frequency of payout potential.

Second, deferred profit sharing plans place cash awards in trust accounts for employees.
These trusts are set aside on employees’ behalf as a source of retirement income, and can also
be considered a long-term incentive.

The use of a profit sharing plans has two main advantages:

 One for the employee, as employee benefits from profit sharing plans, they will be more
likely to work productively to promote profits. The upshot of enhanced employee
productivity obviously is greater profits for companies that use profit sharing plans.
 Second for the companies, companies that use profit sharing programs gain greater
financial flexibility. As we discussed, monetary payouts to employees vary with profit
levels. This features of profit sharing plans enables companies to use limited cash
reserves where needed.
There are two main disadvantages associated with profit sharing plans:

 The first one directly affects employees, profit sharing plans may undermine the
economic security of employees, particularly if profit sharing represents a sizable portion
of direct compensation. Because company profits vary from year to year, so do
employees’ earning. Thus, employees will find it difficult to predict their earnings, which
will affect their saving and buying behavior.
 The second affects companies, if there is significant variability in earnings, a company’s
excellent performers are likely to leave for employment with competitors. The turnover
of excellent performers certainly represents a significant disadvantages to companies.

The good old cash bonus:

One-time bonuses, in addition to regular pay increases or commissions, may be paid to

individuals for meeting certain milestones or performing valuable services.

Other companies might offer bonuses for achieving a specific sales goal or for proposing an
idea that saves money. Bonuses also might be offered for extraordinary performance after
completion, appraisal and analysis of a specific project. [ CITATION Ran182 \l
1033 ]

The use of the good old cash bonus have many advantages:

 First, if employees receive awards every year and increase year to year according to the
revenue of the companies that improve your morale.

 Second, another advantage is from the employer's perspective: aside from the feeling
that you've made a tangible contribution to your employee by rewarding them for their
commitment throughout the year, the improved employee morale may translate to a

stronger reputation in the job-seeker community. [ CITATION Rut18 \l

1033 ]
But this types of incentive pay has a few disadvantages:

 One of the disadvantages of using this type of incentive pay may lead the fact that
employees are not satisfied with rewards and that they prefer that there be an increased in
salary and not an equivalent, and this leads to increased resignations in the long term.

 Another disadvantage is rewarding employees with performance-based bonuses for

shorter, finite period. [ CITATION Rut18 \l 1033 ]

Long-term, stock-based incentive:

Publicly traded companies may offer long-term incentives based on the price of common
stock. These incentives help align an employee's long-term financial interest with that of the
company. The most popular of these types of incentives for employees is restricted stock,
which is given subject to sale restrictions or forfeiture until the employee has been with the
company a specific period of time. Also popular are stock options, which allow the employee
to buy shares at an agreed-upon price for a certain period of time. Performance shares – grants
of actual shares of stock, payment of which is contingent on performance over a multi-year
period – are sometimes offered to executives or officers. [ CITATION Ran18 \l
1033 ]

There many advantages to this types. It include:

 Creates an incentive for employees to stay at the company for longer

 Aligns the interests of employees and shareholders- both wish to see the company thrive
and increase the value of its shares, which leads to increased returns and profits for
shareholders and employees.
But this kind of stock-based incentive has a negative effects.it includes:

 In the event of an increase in the number of shares, it leads to weakening the ownership
of the existing shareholders.
 May not be useful for recruiting or retaining employees if the share price is going down.
That is, the decrease in the value of shares often leads to severances of bonuses and
dismissal from work.

Career development and training:

Offering specialized training in an area of interest is another valued incentive. The key
to making this work is to allow the high-performing individual to choose the type of

training they most value. [ CITATION Cas19 \l 1033 ]

The process of planning about the career involves current and potential abilities that reveal
the self-perception of an individual. Here are a few advantages of career planning:

 Job satisfaction has become a common issue among social workers which
determines mental stability, creative ideas, and recreational facilities.
 It is gained when an employee has significant aspiration or commitment towards
work. It happens with the sense of loyalty and even as the management expects. It
gradually changes the globalization and harder to find.
 Though there are multiple methods of planning one’s career, it has few disadvantages of
planning in management also. They determine the relevance of a career. Here are a few
disadvantages of workforce planning.

 It deals with one success strategy that is self-managed within a certain duration and even
the designed career plan process, it establishes the large workforce that is handled within
strict depth analysis process. This also routes to different scenarios that lead to
unsuccessful exercise.

 Nowadays most of organizations often fail during their uncertain activities. Many
employees are unaware of the career planning strategies. It meets with the lower levels of
programs that are considered in loss of pay. It motivates and structures people with limits
of applicability in uncertain situations. It has promotions on strict observance of

objectivity. [ CITATION Cas19 \l 1033 ]

Recognition and other non-cash incentive plans:

There are many rewards that are given to employees in companies and they are either cash,
meaning that they are paid or they are non-financial rewards and they are through goods words
and during managers on the performance of employees and this is also a kind of reward.

Recognition and other non-cash incentive plans have many advantages. It includes:

 Non-monetary incentives are trending right now.

 Many of these incentives are inexpensive.
But the type of incentive pay have a negative side. It includes:

 Full participation isn’t always guaranteed: Money talks—but non-monetary incentives

tend to be a lot less persuasive. Your team might not be motivated by the rewards you’re
providing, and if that happens, your employee engagement metrics might not change in
any meaningful way.

 Non-monetary incentives can be an organizational nightmare: that means that when all
the rewards are non-cash and they are words and compliments, you cannot give the

employee enough to encourage him, because employees in general prefer cash rewards.

[ CITATION car16 \l 1033 ]