How Do Incentive Plans Help Organizations Achieve Goals?
As the economy becomes more global, competition is at an all-time high. Consequently, organizations are looking for ways to inspire their employees to be more productive. Many organizations have created employee incentive plans that reward employees based on performance and productivity. In the end, these incentive plans are designed to motivate employees to help achieve organizational goals.
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Function
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An incentive plan is essentially a program that rewards employees with benefits and additional compensation when they achieve certain benchmarks. Incentive plans are created because organizations feel that the benefits an employee can potentially receive will entice them to work harder within the organization. Incentive programs are designed to supplement an employee's existing base salary through a variety of methods. Regardless of the organization, the objective of an incentive plan is to achieve organizational goals.
Types
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Organizations typically use one of two incentive plans or a combination of both. The first type of incentive plan is called a financial incentive plan, which rewards employees for superior performance by offering a cash bonus or stock options. On the other hand, the non-financial incentive plan is designed to reward employees without offering additional compensation. Usually, non-financial incentive plans offer benefits like additional vacation days, reimbursement programs and other non-monetary rewards to motivate employees.
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Benefits
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According to a study conducted by professors at Purdue University's Krannert School of Marketing, an engaged employee increases customer satisfaction and organizational profitability. Furthermore, a survey created in 2005 by the Incentive Federation found that organizational incentive plans boost morale, improve teamwork and increase productivity and quality. Both of these studies highlight the significance and benefit of having a properly designed incentive plan in place. Moreover, an incentive plan also enables an organization to more adequately evaluate its employees since benchmarks are set as part of the plan.
Misconceptions
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Many people confuse incentive plans with traditional commission structures. While similar, a commission-based pay structure is entirely oriented on developing new business via sales or another function. In many cases, an employee working under a commission-based pay structure gets all of his compensation from generating new business. On the contrary, an incentive plan is meant to supplement an employee's existing pay. In other words, it is a reward that provides some sort of compensation (either financial or non-financial) as a recognition of exemplary work.
Considerations
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An incentive plan is a program that needs to be carefully constructed. This is especially true when setting benchmarks for employees. Unrealistic or unattainable goals will adversely effect employee morale. Moreover, inadequate rewards will not motivate an organization's personnel to increase the productivity and quality of their work. Finally, an organization must consider its own ability to provide additional financial and non-financial rewards to its employees before creating the plan.
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References
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