The Components of Company Incentive Plans

Companies sometimes struggle with keeping their staff motivated in their work. This can be one of the biggest challenges that HR managers face. The way that HR executives and company managers create enthusiasm among their staff is by providing company incentive plans. The incentives can come in many forms. They can be split up into 3 specific categories. These categories include individual incentives, group incentives, and organizational incentives. I will be going through all three different incentive strategies and describing how company executives and HR managers apply them and what they entail.

Individual Incentives

Individual incentive plans are used to link an employee’s success to added rewards on top of their original compensation. There must be a few conditions present for individual incentive plans to be used and successful in a company. One thing necessary is for the employee’s individual performance to be identified. The HR managers must be able to measure the employee’s performance. The measurement is necessary because each employee has different jobs and responsibilities so they need a way to scale their performance and relate it to other employees. HR managers must also tolerate competitiveness among employees. Incentive plans require certain employees to win and others to lose and this creates competiveness among employees. This competition, more times than not, forces the employees to want to perform at a higher level. The most popular individual incentive system is called the Piece-rate system. This system uses a simple calculation to determine the wages for employees. The number of units an employee produces is then multiplied by the price of one unit. This calculation allows executives to determine an employee’s performance.

Group Incentives

The use of groups and teams in organizations poses an opportunity to do combined incentive plans and incorporate the entire group/team. This takes a little more work on the part of the HR managers because they have to create an incentive plan for a group of different people rather than just one individual. This makes it more difficult because the entire team must benefit from the incentive plan for it to be effective. Some examples of team/group incentives include cash bonuses for the entire team or things other than cash like vacations. The issue with group incentives is how it places pressure on the person presenting the incentives. They are forced to choose between same size reward for each member of the group and different sized reward for each member. These are the two principal ways that HR executives distribute the group incentive awards. Group incentives can also be distributed different times of the year to team members. They are normally given out annually. Although, when there is a shorter time between each incentive, it will usually show the employees the relation between their performance and their reward.

Organizational Incentives

This type of incentive plan is the next step up from group and team incentive plans. Individual incentive plans are the smallest and more focused plan then it increases to team incentive plans, which is broader and encompasses a small number of people. The final level up is known as an Organizational incentive plan. It rewards the entire companies workforce based on how the organization performs in that specific year. These incentive plans are meant to bring an organization closer together and promote cooperation among employees. Organizational incentive plans can be divided into two separate systems. They are known as profit sharing, which is when the company distributes the profit of the company to employees, and employee stock plans, which is where companies allow employee to purchase company stock at a reduced price.

Conclusion

At some companies employees have difficult times staying focused and motivated on their work. This requires some sort of reward for excellent performance to get them back on track. Organizations use incentive plans to help motivate employees to perform to the best of their ability. These plans can produce competition among employees but competition can bring out the best work in some people. There are three types of incentive plans that exist in companies today. They begin by focusing on individuals to focusing on entire companies. They are Individual Incentive plans, Group/team Incentive plans, and Organization Incentive plans. Using these three plans companies are able to push their employees and help them persevere to perform at there best by using cash or non cash incentives (vacations).

References

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