Incentive compensation is considered effective tool in motivating employees and aligning them to organizational objectives. Incentives are rewards for an agreed target goals. The organization can use different types of incentives e.g. bonus, commission, certificates or trips. The incentive scheme can be individual or team or a mix of both. Different organizations e.g. Monsanto, Bidgee Bank, Indianapolis Power and Light, and American President Lines use various incentive schemes that focus on its ultimate goals. Incentives are effective when individual, team and overall objectives are taken into accounts. Maslow's hierarchy of needs, expectancy and goal-setting theories provide a theoretical explanation of motivation mechanism. Equity theory explains how team incentives can be effective. Although financial incentives encourage and motivate employees, it can lead to some negative results. Employees may only focus on rewarded aspects of the job and ignore the other aspects i.e. focus on quantity and not quality. Employees may refuse promotions if it will result in less salary. Individuals might be aggressive and steal work from each other. Therefore the organization need to carefully combine different incentive schemes to compensate for individual and team high performance. The organization should focus on coordination, cooperation and provides training for the right type of employees.
Introduction.
Incentive compensation plans are considered powerful motivation tool in achieving the organization's objectives. Incentives can focus employee attention on the organization's goals. Incentive compensation is defined as," compensation that is linked to performance by rewarding employee for actual results achieved instead of seniority or hours worked." Incentives are introduced to support employee identification with the organization's objective e.g. profit sharing. Rewards are related to employee achievement of goals to improve commitment and employee contribution to the organization's overall success.
