Incentives

Definition:
An incentive is an object, item of value, or desired action or event that spurs an employee to
do more of whatever was encouraged by the employer through the chosen incentive.
Four kinds of incentives are available for employers to use at work.
Compensation incentives may include items such as raises, bonuses, profit sharing, signing
bonus, and stock options.

Recognition incentives include actions such as thanking employees, praising
employees, presenting employees with a certificate of achievement, or announcing an
accomplishment at a company meeting.

Rewards incentives include items such as gifts, monetary rewards, service award
presents, and items such as gift certificates. An additional example is employee
referral awards that some companies use to encourage employees to refer job
candidates.

Appreciation incentives include such happenings as company parties and
celebrations, company paid family activity events, ice cream socials, birthday
celebrations, sporting events, paid group lunches, and sponsored sports teams.
How Do Employers Use Incentives?
Employers use incentives to promote a particular behavior or performance that they believe is
necessary for the organizations success. For example, a software company provides
employee lunches to promote teamwork across departments and functional areas.
They also use the lunches to provide necessary information to employees or for employees to
present to their coworkers on hobbies and interests all of which contribute to staff members
knowing each other better.
They are used for reasons such as:
Increase productivity

Retain employees

Attract and recruit great employees

Reward high achievers

Thank employees for reaching and exceeding goals

Encourage teamwork
Problems with Incentives
Incentives can be tricky for employers. Depending on what is incentivized, employers can
encourage teamwork and cooperation or damage it. If you provide an individual sales
incentive to sales staff, for example, you guarantee that your sales force will not work
together to make sales. Alternatively, provide a team incentive and employees will follow up
each others leads, share best methods, and work as a team to make sales.

Advantages
According to the National Commission on Labour, Under our conditions, wage incentive is
the cheapest, quickest, and surest means of increasing productivity. The various merits of
wage incentive schemes are:
1. Wage incentive schemes offer to workers the prospect of earning more thereby raising
their standard of living.
2. Wage incentive schemes help in improving the industrial relations and discipline in the
organisation.
3. Wage incentive schemes act as rewards for good performance. This encourages workers to
come forward with new ideas and suggestions to improve productivity.
4. Wage incentive schemes are based on a standard of performance for the job. The standard
is usually set after making a scientific work study. This brings about improvements in
methods.
5. Wage incentive schemes are beneficial as they reduce the need for supervision and thereby
reduce the cost of production.
6. Wage incentive schemes bring commonality of goals and targets between the management
and workers.
7. This helps in developing a feeling of mutual co-operation between the management and the
workers.
Disadvantages
Despite the various merits of wage incentive schemes, several studies on the subject show
that incentive schemes have a dubious value for increase in output.
The belief underlying wage incentive schemes is that an offer of additional money will
motivate workers to work harder and more skillfully which will result in an increased rate of
output but it has been found to be incorrect.
Even where an incentive scheme yields an increased output, it may generate tensions among
the different parts of an organisation. The various demerits of wage incentive schemes are:
1. Some workers are more productive than the others. This helps them to earn more. When
the earning capacity among workers differs, it results in jealousy among them.
2 Workers tend to sacrifice quality for the sake of quantity. This results in the production of
sub-standard goods.
3. In order to produce more, workers will disregard safety regulations. This may result in
injury to workers and breakdown of machinery.
4. Workers tend to overwork and these results in undermining their health.
5. Workers very often ask for compensation whenever production flow is disrupted due to
fault of management.
6. Even where an incentive scheme yields an increased output, it may generate tensions
among the different parts of an organisation.
7. Such tensions often create difficult managerial problems which may eventually affect
output.

Piece rate compensation:
Under this system, employees are paid based on the number of units, or pieces, they complete, rather
than on the number of hours they work. For example, a plumbing subcontractor may pay employees
based on the number of sink faucets installed in an office building, rather than on the number of hours
it took to install the faucets during a particular workweek. Although this is an entirely permissible and
legal way to pay employees, and is quite common in the construction industry, it is not a cure-all.
Employees paid on a piece-rate basis are not exempt from the various requirements of the Fair Labor
Standards Act ("Act"), including minimum wage, overtime, and record-keeping obligations.
Paying on a piece-rate basis can be advantageous for both employees and employers. Employers
find it attractive because the compensation scheme motivates employees to work more efficiently
which, in turn, helps the employer's bottom line. In theory, piece-rate compensation provides an
employee the ability to earn more in less time than the employee would have earned with regular
hourly pay. At the same time, the employer creates a work atmosphere that promotes and rewards
productivity.
There are downsides, of course, one being that employees can be overly "incentivized" to work too
quickly, which could jeopardize the quality of the job performed.
Fringe Benefits
an extra benefit supplementing an employee's money wage or salary, for example a
company car, private health care, etc.
"some occupations offer an employer's pension as a fringe benefit"
synonym
s:
added extra, additional
benefit, privilege, benefit, advantage, bonus,dividend, extra, plus, premium, conside
ration, reward;
lagniappe;
informalperk, freebie, plus, plus point;
formalperquisite;
rareappanage
"they were attracted to the deal by the fringe benefits"

Fringe benefits commonly include health insurance, group term life coverage,
education reimbursement, childcare and assistance reimbursement, cafeteria
plans, employee discounts, personal use of a company owned vehicle and
other similar benefits.

Need for Extending Fringe Benefits:

During the World War II certain non-monetary benefits were extended to employees as
means of neutralizing the effect of inflationary conditions. These benefits which include
housing, health, education, recreation, credit, canteen etc. have been increased from time to
time as a result of the demands and pressures from trade unions. It has been recognized that
these benefits help employees in meeting some of their lifes contingencies and to meet
the social obligation of employers.
Most of the organizations have been extending the fringe benefits to their employees, year
after year, for the following reasons,
Employee Demands:
Employees demand a more and varied types of fringe benefits rather than pay hike because of
reduction in tax burden on the part of employees and in view of the galloping price index and
cost of living.
Trade Union Demands:
Trade Unions compete with each other for getting more and a new variety of fringe benefits
to their members such as life insurance, beauty clinics. If one union succeeds in getting one
benefit, the other union persuades management to provide a new model fringe. Thus, the
competition among trade unions within an organization results in more and varied benefits.
Employers Preference:
Employers prefer fringe benefits to pay-hike, as fringe benefits motivate the employees
for better contribution to the organization. It improves morale and works as an effective
advertisement.
As a Social Security:
Social security is a security that society furnishes through appropriate organization against
certain risks to which its members are exposed. These risks are contingencies of life accidents
and occupational diseases. Employer has to provide various benefits like safety measures,
compensation in case of involvement of workers in accidents, medical facilities etc with a
view to provide security to his employees against various contingencies.
To Improve Human Relations:
Human relations are maintained when the employees are satisfied economically, social and
psychologically.


Glass Ceilig:
Invisible but real barrier through which the next stage or level of advancement can be seen,
but cannot be reached by a section of qualified and deserving employees. Such barriers
exist due to implicit prejudice on the basis of age, ethnicity, political or religious affiliation,
and/or sex. Although generally illegal, such practices prevalent in most countries. It is most often
heard in the context of women who cannot advance to the highest levels of power in the workplace. The glass ceiling is a
way of describing whatever keeps women from achieving power and success equal to that of men.

Definition of 'Employee Stock Option - ESO'

A stock option granted to specified employees of a company. ESOs carry the
right, but not the obligation, to buy a certain amount of shares in the
company at a predetermined price. An employee stock option is slightly
different from a regular exchange-traded option because it is not generally
traded on an exchange, and there is no put component. Furthermore,
employees typically must wait a specified vesting period before being allowed
to exercise the option.

The idea behind stock options is to align incentives between the employees
and shareholders of a company. Shareholders want to see the stock
appreciate, so rewarding employees when the stock goes up ensures, in
theory, that everyone is striving for the same goals. Critics point out,
however, that there is a big difference between an option and the ownership
of the underlying stock. If the stock goes down, the holder of an option
would lose the opportunity for a bonus, but wouldn't feel the same pain as
the owner of the stock. This is especially true with employee stock options
because they are often granted without any cash outlay from the employee.

Another problem with employee stock options is the debate over how to
value them and the extent to which they are an expense on the income
statement.


Steps of Job evaluation:
Gaining acceptance
_Creating job evaluation committee
_Finding the jobs to be evaluated
_Analyzing and preparing job description
_Selecting the method of evaluation
_Classifying jobs
_Installing the program
_Reviewing periodically

Performance based pay
A financial reward system for employees where some or all of their monetary compensation is related to how
their performance is assessed relative to stated criteria. Performance related pay can be used in a business context for
how an individual, a team or the entire company performs during a given time frame.