What Is Incentive Scheme;Types,Examples And Objectives

An incentive scheme is a motivational tool that seeks to align the interests of the workers with those of the company.The incentive scheme must then allow the company to better achieve its objectives. This, through ensuring that workers exceed the expectations of their position and promote the growth of the firm.For any company, it is important to design an attractive incentive scheme that motivates employees who are the human capital necessary to achieve the organization’s objectives and will strive to the best of their abilities.

What Is Incentive Scheme;Types,Examples And Objectives

What Is Incentive Scheme;Types,Examples And Objectives.

The objective of an incentive scheme is to reduce the cost per unit produced. For example, assume that a worker is paid £6 per hour and in 1 hour produces 10 units. The average labour cost per unit will be 60p. To stimulate production, a piecework system is introduced where workers are paid 50p per unit produced. Assuming that this results in an increase in productivity to 14 units per hour; the hourly rate would increase to £7 (14 x 50p). The overall effect is that there is an increase in the hourly rate of the employee and a reduction in the labour cost per unit produced for the employer (from 60p to 50p).

The employer could afford to pay a piecework rate in excess of 50p per unit and still be better off if there is an increase in production, because of the reduction in fixed overhead per unit. For example, assume in the above illustration that 10 workers each produced 10 units per hour and worked for 40 hours per week. The weekly production would be 4000 units. If the fixed overheads per week were £4000 then the fixed overhead per unit would be £1. However, if all 10 workers increased production to 14 units per hour under a piecework system then weekly production would increase to 5600 units, and the fixed overhead per unit produced would be reduced to 71.4p (£4000 5600 units). The introduction of the incentive scheme will be worthwhile provided that the increased output can be sold at a price that is in excess of the cost of production.

Types of incentive scheme

The incentive scheme is made up of two categories, where each one is made up of various options used by the company to compensate the worker for their work.

  1. Economic or monetary incentives: Payment is in money represented in a number of months of additional salary, bonuses or shares of the company.
  2. Non-economic or moral incentives: In this category there is a diversity of payments, among which the following stand out:
  • Recognition plates.
  • Tourist packages.
  • Make work hours more flexible, giving workers more free time to balance their personal and work life.
  • Work remotely or telework, to keep you closer to your family nucleus.

Advantages of the incentive scheme

The value of the incentive scheme is the synergy between the company and the workers since, among other advantages:

  • They attract the best talent: When the company stimulates its workers, it is better valued, so it will attract valuable professionals.
  • They favor the increase in productivity: When the company achieves the objectives, it grants the incentives creating greater motivation in the workers who will continue to strive to increase their performance.

Incentive Scheme Example

You can see the use of the term in sentences such as:

  1. Bimonthly bonuses for information systems personnel are part of the incentive scheme for their outstanding work in software implementation.
  2. Workers from the financial area achieved the goals of the semester, and within the company ‘s incentive scheme , they were awarded to study English for a year.

by Abdullah Sam
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