Introduction
An incentive plan can be defined as a program set up to issue out benefits to workers of an organization as a way of rewarding them for the high level of their commitment performance and as a way of motivating them. Such a plan is set up in a way to enhance the fringe benefits together with the base pay. The awards of such plans can be done basing on individuals or groups.
Types of incentive plans
Several types of incentive plans do exist. Among them is the annual performance bonus plan. The other is the profit sharing plan. Each of these incentive plans has advantages as well as disadvantages. For instance, the advantage of the profit sharing plan is that it works well in such a way that it is inclined towards putting much emphasis on the issue that what is excellent for the business organization is equally excellent for the workers of the organization.
Whenever there is an increase in profits achieved by the organization, this translates in to more bonuses to the workers. The drawback of this plan is that in the course of the lean periods, the bonuses freeze to very small amounts. Therefore, in the case of those business organizations that are small, this big change for bonuses can bring so much trouble. More so, another drawback is that, at times, there is the occurrence of long delays between the season during which there is earning of the profits and the season during which there is payment of the bonus.
On the other hand, the performance bonus plan, when well implemented ensures increase in shareholder value and business organization’s success through the motivation of the main executives. This plan is meant to allow the bonus payment that may meet the criteria as compensation based on performance. One of the drawbacks of this plan is that it is not frequent and occurs only once a year making it difficult to connect it to performance. More so, this plan may cause the employees to concentrate most on seeking to be seen as good and this at times can be at the cost of what tends to be most excellent for the bottom line of the business organization (Anon: What are the different types of incentive plans, 2003).
Incentive payment plans
According to the University of Chicago policy guidelines (2005), an incentive payment plan can be defined as a plan of payment that is set up to give reward for realization of particular outcomes. This kind of payment is confined to the anticipated outcomes whose identification is made at the starting point of the series of performance.
An incentive payment for an employee is made within the pay period that the qualifying event took place. This kind of payments is most appropriate in circumstances that are special and calling for the need for hiring, especially in those circumstances that are market driven. The incentive payment plan is issued out through a plan that is approved basing on the performance determined in advance together with the program for reward. This approved plan should be formal and be documented.
According to Barrett (March 1975), under an incentive payment plan that is effective, there is the expectation of the achievement of an incentive level of output and a quarter additional revenues is regarded as a reward that is quite rational and highly acceptable under the overall incentive plans aimed at obtaining incentive output.
Reference List
Anon. (2003). What are the different types of incentive plans? Web.
Barrett, R. H. (1975). Principle wage incentive payment plans. Industrial management. Vol. 17 Issue 3, p1, p7.
University of Chicago policy guidelines, (2005). Incentive/bonus pay. Web.