Meaning
Incentives are the rewards to an employee, over
and above his base wage or salary, in recognition of
his performance and contribution.
“ An incentive scheme is a plan or programmes to
motivate individual or group performance. An
incentive programme is most frequently built on
monetary rewards but may also include a variety of
non-monetary rewards or prizes.”
By- Burack and Smith
Pre-requirements For Effective
Incentive System
Incentive plan should be simple so that it may be
easily understood by the workers.
The plans should be acceptable to the workers,
trade unions and management.
The incentives rates should be made attractive so
as to encourage the worker to give his best results.
All incentives should guarantee a minimum day’s
wages.
The scheme should be explained and discussed
with all employees and supervisors before it is
implemented.
Standards once fixed should not be changes
unless it is necessary.
Two Types Of Incentives
1. Financial Incentives
2. Non-Financial Incentives
Types Of Financial Incentives
Piecework plan
• Hourly rate for an expected minimum
output.
• For production over the standard,
incentives as per piece produced.
Measured DayWork
• Standards are determined using time
study or allied techniques.
• Individuals who have high merit rating
score are paid higher hourly pay.
100 % Bonus
System or
Standard Hour
Plan
• A worker is paid a basic hourly rate and is
paid an extra percentages of his or her
base for production exceeding the
standard per hour or per day.
Group Incentive/ Bonus Plan
It is a plan in which a production
standard is set for a specific work group
and its members are paid incentives if
the group exceeds the production
standard.
Profit Sharing Scheme
It is an incentive plan that engages many
or all employees in a common effort to
achieve a company’s productivity and
any resulting incremental cost-savings
gains are shared among employees and
the company.
Gainsharing Plan
It is an incentive plan that engages
many or all employees in a common
effort to achieve a company’s
productivity objectives and any
resulting incremental cost saving are
shared among employees and the
company.
At-Risky Pay plan
These are some times called variable pay
plans but are essentially plans that put
some portion of the employee’s pay at
risk, subject to the firm’s meeting its
financial goals.
Salary plan
Salary plan varies from organization to
organization. Some firms pay sales
people fixed salaries and no specific
commission or bonus schemes are
paid on achieving the sales targets.
The emphasis being on customer
service rather on high pressure selling.
Commission Plan
Commission plans provide
sales representatives with
payment based on a
percentage of sales turnovers
they generate.
Combination Plan
Most companies pay their
salespeople a combination of
salary and commission. A
portion of total earnings is
paid in form of fixed salary.
Bonus Scheme And Awards
Bonus scheme provide pay in
addition to basic salary which is
related to the achievement of
defined and preferably agreed
targets. These may refer simply to
sales volume or profit.
Base Salary
Decisions on the base salary of
directors and senior executives are
usually formed on the basis of market
worth
of
the
individuals.
Remuneration
on
joining
the
company is usually settled by
negotiation, often subject to the
approval of a remuneration committee
The Annual Bonus
Annual bonus plans are those
which are aimed at motivating
the short term performance of
their managers and executives
and are given on the basis of the
profitability of the company.
Stock Option
A stock option is the right to
purchase a specific number of
shares of company stock at a
specific price during a period of
time.
Book Value Plan
Managers
are
permitted
to
purchase stock at current book
value. Executives can earn dividend
on the stock they own, as the
company grows the book value of
their shares may grow too.
Stock Appreciation Rights
The employee is given the
appreciation in the value of shares
from the date the option was
granted till the date it was
relinquished. He earns without
investing any money in buying the
options.
Restricted Stock Plans
Shares are usually awarded
without cost to the executive but
with certain restrictions. One of
the major restrictions is that the
shares may be forfeited if they
are not earned out over a
specified period of time.
Phantom Stock Plan
Executives receive not shares but
“units” that are similar to shares of
company stock. Then at some
future time they receive value equal
to the appreciation of the
“phantom” stock they own.
Employee Stock Option Plan:
A company contributes shares of its
own stock or cash to be used to
purchase such stock to a trust. The
trust holds the stock in individual
employee accounts and distributes it
to employees upon their retirement or
at the time of separation from service.
Employee Stock Purchase Plan
The employees are given the right
to acquire shares of the company,
normally at a price lower than the
prevailing market price.
Non-Financial Incentives
Materialistic
Incentives
Canteens
Housing Facilities
Education Facilities
Pension
Provident Fund
Schemes
Non-Materialistic
Incentives
Recognition and
praise
Good working
environment
Cordial human
relations
Job satisfaction
“Imagine life as a game in which you are juggling some five balls in
the air. You name them - work, family, health, friends and spirit
- and you're keeping all of these in the air. You will soon
understand that work is a rubber ball. If you drop it, it will
bounce back. But the other four balls - family, health, friends
and spirit - are made of glass. If you drop one of these, they will
be irrevocably scuffed, marked, nicked, damaged or even
shattered. They will never be the same. You must understand
that and strive for balance in your life.”
-Brian G. Dyson
President and CEO
Coca-Cola Enterprises
Definition
Fringe benefits are those monetary and non
monetary benefits given to the employee during
and post-employment period which are
connected with employment but not to the
employees contribution to the organization.
For Example
You Could receive a benefit when you
 Use a work car for private purposes.
 Are provided with a cheap loan.
 Are provided with free private health insurance.
 Are provided with cleaning services for your private
residence or enter in to a salary sacrifice arrangement.
Need & Importance of Fringe Benefits:






To retain the employees.
To motivate performance.
As a social security.
Trade Union demand.
Skill shortage.
Employee Demand.
Principles of Fringe Benefits
 Satisfaction of Real Needs.
 Flexibility.
 Proper Communication.
 Educate the workers.
 Corporate Tools.
 Participation
Fringe Benefits Categories :
 Car Fringe benefits.
 Loan Fringe Benefits.
 Expenses Payment Fringe Benefits.
 Housing Fringe Benefits.
 Airline Transport Fringe benefits.
 Living-Away-from-Home allowance fringe benefits.
 Car Parking Fringe Benefits.
 Property Fringe Benefits.
Fringe Benefits In India :
 Payment for Time not Worked.
 Voluntary Benefits.
 Payment For Special Duties.
 Payment For Health and Security Benefits.
Conclusion:
 Basically, a fringe benefit is a benefit provided to
an employee or an associate (For Example: Family,
Spouse and children) because of his employment.
 Fringe Benefits provide output in terms of
employee loyalty and co-operation, employee
welfare and create Organizational image.
References
1. Ajai Kumar Singhal,“Human
Resource Management.”
2. Gary Dessler & Biju Varkkey,
“Human Resource
Management.”