Incentive

• Meaning: An incentive or reward can be anything

that attracts a employees attention and stimulate to
work. Burack and Smith, “An incentive scheme is a
plan or program to motivate individual or group
performance.
It does not include
• Wage and Salary
• Over time payment
• Pay for holiday
• Premium pay for performing dangerous task.
 Features
• An incentive plan may consist of both monetary and non
monetary elements. Mixed element can provide diversity
needed to match the need of individual employees.
• The timing, accuracy and frequency of incentive are the basis
of successful incentive plan.
• Plan should be communicated to the employee to encourage
individual performance.
 Determinants of Incentives
 In the absence of mutual trust between management & workers, an incentives may
be viewed as an attempt to improve production/ profit only.
 Incentive plan should be installed in consultation with workers & union.
 Payment of incentives should be free from bias & established through scientific/
proper work study.
 To implement incentives plane effectively minimum wages should be guaranteed to
every workers.
 It should be easy to understand & simple to operate so that employee can calculate
their own earnings.
 It should provide equal opportunity to all workers to earn incentives pay.
 Plan should not be very costly in operation.
 Plan should be flexible to adopt any changes later on.
 Payment of incentives should be prompt i.e. as early as possible.
 It should be adequate to motivate each employees.
 Every plan should be reviewed periodically.
 Essential of effective Incentive
• Ensure that efforts and rewards are directly related
• Reward must be valuable to employee
• Reward must be clearly identifiable
• Method and procedure must carefully studied
• Plan must be easy to understand
• Effective standard must be set
• An hourly base rate must be guaranteed
• Clear policy and rule must be developed
• Reward must be in consistent with government regulation
• Reward must be granted promptly
• Firm financial postion
• Minimize friction between worker
• Employee participation
 Long Term Incentive Plan
 Profit sharing
– Profit sharing is an arrangement by which employees receive in
addition to wages, a share is fixed in advance in profit of the enterprise.
– It is an agreement between employer & his employee.
– According to International Labour Organization, “Profit-sharing is a
method of industrial remuneration under which an employer undertakes
to pay to employee, a share in net profit of the enterprise in addition to
regular wages”
 Co-partnership
– Co-partnership is an extension of profit-sharing.
– Under this method worker’s share in company’s profit is paid in the
form of share by which they become entitled to participate in decision-
making process.
 Gain-sharing
– This method aims at increasing productivity & decreasing labour cost
& sharing the result gains wit employee.
– It is based on a mathematical formula which compares a standard
perform with actual performance during given period.
– When actual performance exceed the standard performance, shaving
are shared with employees.
 ESOPs (Employee Stock Option Plans)
– This method is originated in the USA in early 90s.
– Under this plan, the eligible employee are allotted company’s share
below the market price.
– The term “stoke option” implies the right of eligible employee to
purchase a certain amount of stoke in future at an agreed price.
– The eligibility criteria may include length of service, contribution to the
department etc…
 Cafeteria Style Compensation
• Cafeteria Benefits – instead of all workers at a company
getting the same benefits, each worker can pick and choose
among alternative options “cafeteria style”
– Workers are offered a package of benefits that include
‘basic’ and ‘optional’ items
 Cafeteria Benefits Plan
• Basic
– modest medical coverage
– life insurance equal to a year’s salary
– vacation time based on length of service
– some retirement pay
• Flexible ‘credits’ toward additional benefits
– Full medical coverage
– Dental and eye care
– More vacation time
– Additional disability income
– Higher company payments to the retirement fund
 Employer Advantages in
Offering Cafeteria Benefits
• Under conventional plans, employers risk alienating
employees if they cut benefits, regardless of increases in the
costs of coverage
• Flexible plans allow employers to pass some of the increases
on to workers more easily
– Instead of providing employees a set package of benefits,
the employer and employee agree on a set amount of the
employee’s salary to be used toward benefits
– If the employee wants more, he/she pays
Communicating Benefits to Employees
• Make employees aware of them
• Help employees understand the benefits information they
receive in order to take full advantage of the plans
• Make employees confident that they can trust the information
they receive
• Convince present and future employees of the worth or value
of the benefits package
 Communicating the Value
of Benefits Programs to Employees
• Alternative metrics:
– Annual cost of benefits for all employees
– Cost per employee per year
– Percentage of payroll
– Cents per hour
Employee Benefits and Services
 INTRODUCTION

• Management is concerned with attracting and keeping employees, whose

performance meets at least minimum levels of acceptability and at keeping
absenteeism and turnover to tolerable levels

• The provision of benefits and services can be and are important in maintain
the employees and reducing the turnover and absenteeism low.

• The purpose of such benefits is to retain people in the organization and

stimulate them to greater effort and higher performance.

• They foster loyalty and act as a security base for the employee.
 Concept
• Employee benefits and services –

Any benefits that the employee receives in addition to direct remuneration

‘Fringes embrace a broad range of benefits and services that employees receive
as part of their total package. It is based on critical job factors and
performance. Benefits and services however are indirect compensation
because they are usually extended as a condition of employment and are not
directly related to performance’

*fringe benefits are also called welfare expenses, wage supplements sub wages
or social charges, etc
 Concept

• Benefits and compensation provided to the employees usually

depend on the conditions of employment and other factors like
security, safety, health, welfare and recreation of employees

• These benefit programs must be managed carefully to enhance

recruitment and to boost the morale of the employees
Why Organizations Provide Benefits
Employee demand: To meet rising prices and increased cost
of living employees demand various types of benefits
Example: Variable dearness allowance, Enhanced HRA

o Trade union demands: The growth and strength of trade

unions has substantial influence on the benefits and services
a company offers

Employer’s preferences: Employers prefer to give benefits to

employees as it enhances employee’s morale and works as an
effective motivational tool provided it is within the accepted
norms and limits
 Factors influencing the decision to set up a particular
employee benefit and service program

• Cost

• Ability to pay

• Needs of the employees

• Bargaining strength of the trade union

• Tax consideration

• Social responsibility

• The reaction of employees

 Coverage of Benefits
1. Payment for time not worked

(a) Vacation
(b) Holidays
(c) Sick leave
(d) Miscellaneous types of non-working plans
(e) Shifts premium
2. Employee Security
1. Severance pay
2. Lay-off
3. Guaranteed annual wage
4. Supplementary unemployment benefits
5. Retrenchment compensation
3. Safety benefits

4. Health Benefits
(a) Medical benefit or insurance

(b) Managed care

• Health maintenance organization

• Preferred-provider organization
5. Maternity benefit

6. Dependent benefit

7. Insurance benefits
(a) Life insurance
(b) Vision insurance
(c) Dental insurance
8. Welfare and recreational facilities
(a) Educational assistance
(b) Legal assistance
(c)Housing facilities
(d) Financial services
(e) Employee assistance programs
9. Old age and retirement benefits
(a) Provident fund
(b) Pension
(c)Deposit linked insurance
(d) Medical benefit
(e) Gratuity
(f) Retirement counseling
 Employee services
• In addition to fringe benefits, organizations also
provide services that employees find desirable.
• These services are provided at low or no cost to
the employee.
• These are provided at the discretion of the
management with consultation with the trade
unions.
 These services include
• Services related to type of work performed- includes subsidies for the
purchase and upkeep of work clothing and uniform.
• Eating facilities
• Transportation facilities
• Child care facilities
• Housing services
• Financial and legal services
• Recreational, cultural and social programs
• Educational services
• Medical services
• Outplacement services
• Flexible time
• Cafeteria service
 Fringe benefits in India
When a study was conducted , it was revealed that
19,60,981 companies pay little over 2148.3 million in
wages and fringe benefits per year in India.
The fringe benefits were high in mining and plantation
industries low and very low in manufacturing sector.

The quantum of the bonus varied sector to sector

A. Payments for time not worked
B. Statutory fringe benefits
C. Voluntary benefits
 Problems raised by benefit programs

 Charge of Paternalism = When too many benefits & services are offered to
employees , a feeling develops that employers are playing the role of parents
and workers are looked upon as children.

 Excessive Expenditure = It’s a very costly affair and involves a great deal of
paper work

 Maintenance of least productive worker = With increase in benefits and

services employees ,particularly when they are not very productive ,tend to
stick to their jobs and are not interested in changing them.

 Neglect of other personnel functions = Due to excessive concern from

management they stop emphasizing on other aspects of personnel programs
which can develop a concern among the employees .
 Administration of benefits and services

• Organizations have seldom established objectives, systematic plans and

standards to determine the variability of the program
• Lack of employee participation
• Managers take little interest in benefits program and trade unions are almost
hostile to schemes
• Employees have little awareness about such programs
• These problems can be avoided if following steps are taken:
- To establish benefit objectives
- To assess environmental factors
- To assess competitiveness
- To communicate benefit information
- To control benefit costs and evaluation
 Employee Services: Creating a
Work/Life Setting
• Employee Assistance Programs (EAPs)
– Services provided by employers to help workers cope
with a wide variety of problems that interfere with
the way they perform their jobs.
• Typically provide diagnosis, counseling, and referral for
advice or treatment for problems related to alcohol or drug
abuse, emotional difficulties, and financial or family
difficulties.
• Child and Elder Care
– Care provided to a child or an elderly relative by an
employee who remains actively at work.
 Work/Life Benefits: Balancing Work
and Home Needs
• Child care/elder care referral • Extended leave policies for
services child/elder care
• Time off for children’s school • Sick-child programs (caregiver
activities on call)
• Employer-paid onsite or near-
site child care facilities • Work-at-home arrangements/
telecommuting
• Employee-accumulated leave
days for dependent care • Flexible work hours scheduling
• Subsidized temporary or • Customized training programs
emergency dependent-care • Customized career paths
costs
• Partial funding of child care
costs
Other Employee Benefits and Services

Awards Food Services

Recreational and On-Site Health

Social Services

Credit Unions Legal Services

Purchasing
Financial Planning
Assistance

Transportation Housing and

Pooling Moving