Businessdictionary.com defines incentive pay as “A monetary gift provided to an employee based on performance, which is thought of as one way to entice the employee to continue delivering positive results. Incentive pay may come in the form of a bonus, profit-sharing, or commission.” So, pay incentives are those extra perks or bonuses that an employee earns for having shown good results. A good idea of what pay incentives mean is to understand that they are not part of the wages that employees earn during the normal course of their employment.
What should be the nature of pay incentives?
Many employees like to see pay incentives as a carrot that is being dangled by the company leadership to make them put in that extra bit. In fields like sales, it is easy for the employee who is being rewarded to have an idea of that the incentive is going to be, because it is almost certain to be attached to the targets achieved. But in creative and logical areas, there is a problem with how good performance is going to be measured. Many employees would like incentives to be stable and certain, even if they are not too big. Pay incentives, rather than being uncertain and too longwinded, should be simple to grasp and attain.
Advantages of having pay incentives
The one big advantage of having pay incentives in place is that they ensure that the employee feels recognized. Undoubtedly, even if an organization has the best pay structure and benefits, there is no substitute for recognition as a means to make the employee satisfied. When pay incentives are awarded, it is the ultimate recognition that the employee is valued.
One may not associate pay incentives per se with major disadvantages, but there could be some drawbacks associated with improper implementation. They should ideally be used to push them to perform better and reach higher. However, in many cases, pay incentives end up being given to the wrong person. Many organizations indulge in politics in awarding pay incentives. It is not uncommon to come across instances in which the most favored, rather than the best performing employee getting unduly rewarded.
So, pay incentives may not be the panacea for all problems associated with employee performance. They need to be created and handed out judiciously, failing which they could go awry like any other perk.
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