Advantages and Disadvantages of Incentive Plan

Advantages and Disadvantages of Incentive Plan

Advantages and Disadvantages of Incentive Plan

Incentives are variable rewards granted to employees as per the variations in their performance. To succeed, an organization must attract and retain productive employees. Therefore, a business establishes competitive incentive plans to accomplish these objectives. Incentives are provided beside wages and salaries so that the level of motivation and job satisfaction can be enhanced. Incentive payments are quite substantial and paid regularly as wages and salaries.

Advantages of Incentive Plan:

Incentive plans typically surpass standard salary and benefit agreements and usually are given in the form of cash bonuses, extra paid vacation days or gift items of non-monetary value.

  1. Incentive plans motivate workers for higher efficiency and productivity.
  2. It can improve the work-flow and work methods.
  3. Incentive plans make employees hardworking and innovative.
  4. When employees are dedicated, supervision costs can be reduced.
  5. The National Commission on Labour says that under our conditions, wage incentives are the cheapest, quickest, and sure means of increasing productivity.
  6. Incentive plans help establish positive response within an organization.
  7. It helps workers improve their standard of living.
  8. The other benefits offered by incentive plans are reduced turnover, reduced absenteeism, and reduced lost time.

Disadvantages of Incentive Plan

While some workers are naturally loyal and dedicated, incentives can increase motivation to improve productivity. But incentive programs are not perfect. Rewards need to be based on the needs of the employees and the type of business.

  1. Incentive plans can lead to disputes among workers since some earn more than others.
  2. Hunger for money among the workers forces them to overwork, which may affect their health.
  3. Some workers may involve in malpractices in order to earn more money.
  4. For enhanced incentives, they may sacrifice quality.
  5. It also leads to corruption by falsifying the production records.
  6. Incentive plans can create tensions among different personnel.


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