Meaning and Definition of Incentive

Incentive is a tool of motivation which stimulate the person psychologically to work more.

According to George R Terry,”Incentive means that which incites or has a tendency to incite action”.

Thus, Incentive are the psychological effects and person to motivate and inducement offered to employees to perform work or to work beyond the acceptable standards.

Objectives of Incentives Benefits

Wage incentives plans aims at the fulfillment of one or more of the following objectives:

  1. To improve the profit of a firm through a reduction in the unit costs of labour and materials or both.
  2. To avoid or minimize additional capital investment for the expansion of the production capacity.
  3. To increase a worker’s earnings without dragging the rm firm into a higher wage rate structure regardless of productivity.
  4. To use of wage incentives plans as a useful tool for securing a better utilization of manpower,better production scheduling a performance control, and a more effective personnel policy.

Advantages of Incentives

  1. It induces workers for higher efficiency and more output.
  2. Payment of incentives leads to minimum per unit cost of product as there is an increased efficiency and greater output.
  3. Increase productivity and production capacity of the plant takes place.
  4. Incentives increase the earnings of employees. At times more than wages.
  5.  It saves manager’s time for supervision because employees are motivated for better performance.
  6. Improves safety.
  7. Increases company loyalty.
  8. Promotes teamwork.

Disadvantages of Incentives

  1. Payment of incentives does not ensure improvement in quality. For this regular inspection is necessary which leads to increase in costs. Increase in output through payment of incentives offset through deterioration of quality.
  2. When the employees start receiving pretty good amount as incentive, they develop a tendency to consider this earning as normal. If incentive discontinued, they agitate for its revival, posing difficulties for management.
  3. Some studies in the industrialized countries of the west show that incentive schemes have a dubious value for increase in output.
  4. Determination of standard performance is yet another problem. Past performance cannot be the right base for setting standard.
  5. In every organisation two types of employees work. One group work fast and others are slow. In case of group incentive scheme fast workers are at the receiving end because they receive less payment as compare to their output. This developed dissatisfaction among them.
  6. In case of ever production the management may discontinue incentive scheme, causing loss to the employees. Money is a hygiene factor which removes dissatisfaction.