individual employees, sales people, executives and managers, as well as some organization-wide

plans. We will not talk about any of the motivation theories discussed in your textbook so be

sure to read about them in chapter 12.

In order to have an idea of how incentives work, we need to spend some time discussing

what motivates people. What motivates you to do things? Not just in work, but in all

of the things you do? Is it money, or flexibility in your schedule? Everyone is different and

it is important to note that no single motivation technique will work for every employee.

Incentives are financial rewards above and beyond regular salary.

Frederick Taylor popularized the theory of scientific management and the use of financial

incentives in the late 1800s. He believed employees engaged in something known as

Systematic soldiering, the tendency of employees to work at the slowest pace possible and to

produce at the minimum acceptable level. He believed by providing financial incentives

you could motivate people to work harder. What he did not take into account, and which

we now know is the Law of Individual Differences, which says people differ in personality, abilities,

values, and needs. Thus, people react to different incentives in different ways.

Managers should be aware of employee needs and fine-tune the incentives offered to meet

their needs. They should also keep in mind that money is not the only motivator.

Here are the results of a research study that shows the breakdown of the type of incentives

most preferred by employees. As you can see a large majority of employees enjoy travel

and would love to have their employer fund a vacation for them. However, not all organizations

can afford to do something of this magnitude, especially small businesses.

There are many different types of incentive plans and we will briefly discuss each one

beginning with individual incentives. There are two main types of individual incentive

plans: piecework plans and merit pay. The first individual incentive, piecework, is

paying the worker a sum, or piece rate, for each unit he/she produces. There are several

pros and cons of piecework. One example of an advantage is that the plan is easily understood.

However, there can be problems with the quality of the product produced if the incentive is

based on only the number of units created.

The other individual incentive, merit pay, is a permanent, cumulative salary increase

the firm awards to an individual employee. The raise can be based on the individual's

performance alone or on a combination of both individual and organization performance.

Here is an example of a merit pay program that is based 50% on individual performance

and 50% on organizational performance.

You can see that if both the individual and the company have outstanding performance then

the employee will receive all of the merit pay and if the employee's performance is good

but the company's performance is only marginal then 50% of the total raise possible is granted.

When considering incentives for professional employees, the options become more diverse.

Things such as bonuses, better pension plans, etc. can be used.

Organizations can also use recognition-based rewards. Studies show that recognition has

a positive impact on performance, either alone or in conjunction with financial rewards.

Combining financial rewards with non-financial ones produced performance improvements almost

twice that of using each reward alone.

Also, many organizations are using what is known as Online Reward Programs to customize

their incentive plans. Online Reward Programs are Internet sites that have a much broader

range of products than most employers could offer. Employees build up points and then

can pick and choose what reward is most important to them. This customizability makes it much

easier to bestow and deliver rewards. Now we should discuss incentives for salespeople.

Organizations that employee salespeople have to be use different types of incentives.

They can use a straight salary plan, which makes it simple to switch territories or to

reassign individuals. However, it can constrict sales and de-motivate high-performers because

there is no reward for selling more. Another option is the commission plan. This plan pays

salespeople for results, and only for results; thus, they tend to attract high-performing

sales people who see that effort clearly leads to rewards. But it may cause them to neglect

non-selling duties like servicing small accounts or cultivating dedicated customers. One last

option is a combination plan. Most companies pay salespeople a combination of salary and

commissions. Combination plans give salespeople a floor to their earnings, and still provide

an incentive for superior performance.

We also need to discuss incentives for teams. For most team incentive plans a production

standard must be set for a specific work group. The members are paid incentives if the group

exceeds the production standard. What is most important to remember about team incentives

is that you want the individuals to work as a team; therefore, they must be rewarded as

a team. If you put people into teams but reward individual performance then the team will

never really work because each person will be concerned about their own performance and

not necessarily the performance of the group. Businesses must tie rewards to goals based

on an overall standard of group performance.

While individual and team incentives are important, organizations can also create company-wide

incentive plans. One option is the Profit-Sharing Plan. Profit-Sharing involves employees receiving

a share of the company's annual profits. In other words the company takes a designated

portion of the profits and divides it among its employees. Another option is the Employee

Stock Ownership Plans (ESOP). Here a firm purchases shares of its stock for employees

so when the organization succeeds, employees are rewarded because the value of the stock

increases.

Yet another option, known as a Gainsharing Plan, is an incentive that engages some, or

all employees. in a common effort to achieve productivity objectives, with any resulting

cost-savings gains shared among employees and the company. For example, if you find

a way to reduce the amount of paper your organization uses and that saves the company money, then

the organization shares a portion of those saving, or gains, with you.

Incentives for Managers and executives can be the same as incentives offered to other

employees such as bonuses or stock options but when speaking in terms of upper management

and executives we are talking about much bigger bonuses and much larger portions of stock

that are handed out to these individuals. Almost any incentive plan can be scaled up

to the executive level.

Today we have discussed the different types of incentive programs organizations can use

to increase employee motivation. Now you should have a better understanding of how organizations

can supplement an employee's basic compensation with other monetary incentives.