Incentives are variable rewards granted to employees as per the variations in their performance. Incentives are provided besides 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. The International Labor Office states that the incentive payments as 'payment by results'. They emphasize on the point of motivation, productivity, job satisfaction and good labor relation among the employees. Usually incentives are not relatively fixed as wage and salaries do. They depend upon the level of performance and vary from individual to individual and from period to period for the same individual too.
The obtained advantage of incentives is the inducement and motivation of employees towards the higher level of performance and greater output. They offer an attraction of extra payment for efficiency and productivity. An efficient incentive plan guarantees a fixed minimum wage rate based on hourly rate and extra remuneration for increased output.
Incentive plan is designed on the basis of following assumptions:
- Individual workers and work teams differ in terms of how much they can contribute towards organizational objectives.
- The overall performance of the firm largely depends on the performance of individual workers and work teams.
- The employees are rewarded based on their relative performance for a high performance.
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