Incentive Plan INCENTIVE PLANS Name University Roll No Page 1 Incentive Plan Success is the main aim of any organisation and its members An organisation must attract and retain productive employees to achieve a continuum success A competitive nature of incentive plan helps accomplishing the objective of success Such plans motivate employees and so an exceptional behaviour of the employees becomes evident for a specific period The goals must be obtainable in nature Otherwise morale of the employees fades making the plan ineffective Incentive plans are different at the different levels of the organization s hierarchy such as staff and first line supervisors The purpose of all the incentive programs is not merely for employees but also for the customers to retain Customer incentive programs target the most valuable customers to participate in target programs design to earn their repeat business Retaining customers establishes more successful growth for the organization Second purpose of the incentive plan is to boosts productivity by earning profits which is the end goal of every organization Third purpose is to retain the top talent of an organization by establishing comparable incentive plans and bonuses with competing companies A glance at the different types of incentive plans Individual Incentive Plans Executive Incentive Plans Sales Incentive Plans Long Term Incentive Plans Performance Incentive Plans Incentive Compensation Plans Bonus Incentive Plans Page 2 Incentive Plan Incentives are given to feel more attached to the organization s success by providing them the opportunity to earn additional income Incentives often take the form of cash but they can also be paid in the form of a product or a family vacation Among the different types of incentive plans with the annual performance Bonus is the best known and Profit sharing plans are very common Stock options and performance units are also another type of incentive plans Bonus The bonus pay structure is common in professions such as sales marketing and production The employees who reach to a specific performance levels they may receive a bonus for their performance For instance sales people are rewarded bonuses for the increased number of sales Accountants are also rewarded bonuses for reducing expenses In some cases the employee may not know the amount of bonus he will receive until it is actually awarded Profit Sharing Plans Profit sharing is another incentive plan when an organization shares a portion of its profits with the employees which motivate them to increase productivity and limit waste Profit sharing usually occurs on an annual basis and may be in the form of company stock or a contribution to a retirement plan A profit sharing plan may also be offered as part of a recruiting package to attract new employees Organizations also develop a profit sharing percentage based on the amount of time worked for the company the position held within the company or a combination of both conditions The Advantages of Incentive Plans Motivation Page 3 Incentive Plan The key role of incentive is to encourage employees of the organization and give staffers something to aim for The advantage is that there is enhanced level of productivity for the employer A bonus is paid for the level of performance attained by an employee Whereas in case of profit sharing plan it urges employees to motivate them to stay in an organization for a longer duration Increased Earnings employee is rewarded Loyalty Bonus is paid on the basis of the revenue the employee generates for an organization More revenue more rewards an employee are paid Hence the total revenue and bonus of an employee depends on the increased performance in sales or marketing Whereas in case of profit sharing plan the enhanced contribution made by an employee on an annual basis the Motivated employees enhance their performance for incentives They have the positive impact on the earnings of the organization thus are more likely to be loyal towards the organization they represent The bonuses and profit sharing leave the residual value on the basis of the performance or on an annual basis This becomes an advantage to the employee and employer for there to be longevity in the professional relationship Reduced Turnover Bonus incentive is a way of rewarding increased performance of the employees and showing them the appreciation for the added advantage to the organization The advantage to the employer is reduced turnover which also results in time and money savings related to recruiting new hires Whereas in a profit sharing plan employer may attract more well qualified candidates by offering a recruiting package Page 4 Incentive Plan Collaborative Efforts Bonus and profit sharing plans are paid to individuals on the work performance The organization with the help of its employees could achieve the end goal The employees work in an organization for an organization and for their organization and self The collaborative efforts of all could achieve the desired result strengthening the bond and enhancing regular work relationships between departments and co workers resulting in increased productivity The Disadvantages of Incentive Plans Cash Bonuses Bonuses and profit sharing incentives are based on employee accomplishments based on consistent performance It becomes difficult to evaluate actual performance for the employer to pay lump sum bonus or profit share incentive on annual basis Non cash incentive is an alternative to cash rewards such as a trip gift certificate or product The bonus rewards may be completely ineffective if it do not interest the employee In case of profit sharing plan if the organization hires new employees it may not guarantee the Non Cash Incentives employees performance Group Incentives It becomes difficult for the employer to gauge the performance of an employee Bonuses are paid in lump sum so there could be inconsistency in the performance In case of profit sharing plan incentives are paid on an annual basis The employees works in a team for the organization s goal may find that one is contributing more than their peers leading to resentment Page 5 Incentive Plan Commission resentment Bonus being motivator tend to become the source of insecurity and pressure especially in meeting sales or performance quotas Employees have the fear of job loss cause resentment In case of profit sharing plan the competition among piers performance may bring Page 6 Incentive Plan