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Incentive program
An incentive program is a formal scheme used to promote or encourage specific actions or
behavior by a specific group of people during a defined period of time. Incentive programs are
particularly used in business management to motivate employees and in sales to attract and retain
customers. Scientific literature also refers to this concept as pay for performance.
Employee incentive programs are programs used to increase overall employee performance.
Employee programs are often used to reduce turnover, boost morale and loyalty, improve
employee wellness, increase retention, and drive daily employee performance.
Kinds of Incentives- Mainly 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.
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Another Incentive Type: Perverse incentive
A perverse incentive is an incentive that has an unintended and undesirable result which is
contrary to the interests of the incentive makers. Perverse incentives are a type of unintended
consequence.
EXAMPLES:
In Hanoi, under French colonial rule, a program paying people a bounty for each rat tail handed
in was intended to exterminate rats. Instead, it led to the farming of rats.
Funding fire departments by the number of fire calls made is intended to reward the fire
departments that do the most work. However, it may discourage them from fire-prevention
activities, which reduce the number of fires.
19th century paleontologists traveling to China Used to pay peasants for each fragment of
dinosaur bone (dinosaur fossils) that they produced. They later discovered that the peasants dug
up the bones and then smashed them into many pieces, greatly reducing their scientific value, to
maximize their payments.
Paying medical professionals and reimbursing insured patients for treatment but not prevention
encourages the ignoring of medical conditions until treatment is required. Also, paying only for
treatment effectively discourages prevention (which would reduce the demand for future
treatments and would also improve quality of life for the patient). Payment for treatment also
generates a perverse incentive for unnecessary treatments which could be harmful, for example
in the form of side effects of drugs and surgery. These side effects themselves can then trigger a
demand for further treatments.
The Endangered Species Act in the US imposes development restrictions on landowners who
find endangered species on their property. While this policy is well-intentioned and has some
positive effects for wildlife, it also encourages preemptive habitat destruction (draining swamps
or cutting down trees that might host valuable species) by landowners who fear losing the use of
their land because of the presence of an endangered species. In some cases, endangered species
may even be deliberately killed (shooting, shoveling, and shutting up) to avoid discovery.
Providing company executives with bonuses for reporting higher earnings encouraged
executives at Fannie Mae and other large corporations to inflate earnings statements artificially
and make decisions targeting short-term gains at the expense of long-term profitability.
Digital rights management has been shown to create perverse incentives for users to use
pirated software. Legally purchased software products have had necessary difficulties (e.g.
product activation methods, user identification methods, continuing internet access) which their
pirated counterparts have generally been without

and there have been incidents, such as
erroneous bans, that haven't affected those using pirated software.





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REWARDS
Employee Reward Systems refer to programs set up by a company to reward performance and
motivate employees on individual and/or group levels. They are normally considered separate
from salary but may be monetary in nature or otherwise have a cost to the company. While
previously considered the domain of large companies, small businesses have also begun
employing them as a tool to lure top employees in a competitive job market as well as to increase
employee performance. Although employee recognition programs are often combined with
reward programs, they retain a different purpose altogether. They are intended to provide
psychological rewards a financial benefit. Although many elements of designing and maintaining
reward and recognition systems are the same, it is useful to keep this difference in mind,
especially for small business owners interested in motivating staffs while keeping costs low.

DESIGNING A REWARD PROGRAM
The key characteristics of developing a reward program are as follows:
Identification of company or group goals that the reward program will support.
Identification of the desired employee performance or behaviors that will reinforce the
companys goals.
Determination of key measurements of the performance or behavior, based on the individual or
groups previous achievements.
Determination of appropriate rewards.
Communication of program to employees.
Reward systems are concerned with two major issues: performance and rewards. Performance
includes defining and evaluating performance and providing employees with feedback. Rewards
include bonus, salary increases, promotions, stock awards, and perquisites.
Large corporations with several different businesses may have multiple reward systems. And
while they may share some fundamental philosophies and values, they may differ according to
the particular business setting, competitive situation, and product life cycle. Thus, multiple
reward systems can support multiple cultures within one organization.
These components will be designed, developed and maintained on the basis of reward strategies
and policies which are created within the context of the organizations between strategies, culture
and environment. The reward systems would help to:
1. Improve Organizational Effectiveness: Support the attainment of the organizations mission,
strategies, and help to achieve sustainable, competitive advantage.
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2. Support and Change Culture: Under pin and as necessary help to change the organizational
culture as expressed through its values for performance innovation, risks taking, quality,
flexibility and team working.
3. Achieve Integration: Be an integrated part of the management process of the organization.
This involves playing a key role in a mutually reinforcing and coherent range of personal
policies and process.4. Manageable: It helps to manage the undue administrative burdens
imposed on managers and members of the personnel department.
5. Motivate Employees: Motivate employees to achieve high levels of quality performance.
6. Increased Commitment: Enhance the commitment of employees to the organization that will
a) want to remain members of it, b) develop a strong belief in and acceptance of the values and
goals of the organization; and c) be ready and willing to exert considerable effort on its behalf.
7. Fairness and Equity: Reward assesses people fairly and consistently according to their
contribution and values to the organization.
8. Improved Skills: The employees can upgrade competence and encourage personal
development.
9. Improved Quality: Help to achieve continuous improvement in levels of quality and customer
service.
10. Develop team working: An effective award system improves co-operation and effective team
working at all level.

TYPES OF REWARDS
Besides verbal appreciation, tokens of appreciation, rewards (award trophies, framed certificates,
special parking spaces, gift cards, pens or a free day off.) etc. are generally given to employees.
When employers praise their employees performance it is a positive experience for both the
manager and the employee. Appraisal enhances motivation, keeps employees goal-oriented and
morale high. With high morale and a feeling of worth, employees will want to exceed in the
workplace. Various categories of rewards that are given and can be given are:
Additional Hours Rewards: This is similar to that of overtime. However, it is paid to
employees if they put in an extra hour of work for working at unsocial hours or for working long
hours on top of overtime hours.
Commission: Many organizations pay commission to sales staff based on the sales that they
have generated. The commission is based on the number of successful sales and the total
business revenue that they have made. This is a popular method of incentive.
Basic Pay: Pay is an essential factor which is closely related to job satisfaction and motivation.
Although pay may not be a reward as this is a static amount which an employee will be paid
every month, it will be considered as a reward if similar worker is paid less.
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Bonuses: Bonuses will be paid to employees who meet their targets and objectives. This is
aimed at employees to improve their performance and to work harder.
Performance Related Pay: This is typically paid to employees who have met or exceeded their
targets and objectives. This method of reward can be measured at either team or department
level.
Profits Related Pay: Profits related pay is associated with if an organization is incurring a profit
situation. If the organization is getting more than the expected profits, then employees receive an
addition amount of money that has been defined as a variable component of the salary.
Payment by Results: This is very similar to that of profit related pay. This reward is based on
the number of sales and total revenue generated by the organization.
Piece Rate Reward: Piece rate reward is directly related to output. The employees get paid on
the number of pieces that they have produced. These pieces will be closely inspected to make
sure that quality standards are being met.

Recognition: Employees will not always be motivated by monetary value alone. They do
require recognition to be motivated and to perform well in their work.
Job Enrichment: This is a common type of recognition that is aimed at employees to get
motivated. Job enrichment allows more challenging tasks to be included in the day-to-day tasks
performed by the employee.
Job Rotation: Unlike job enrichment, job rotation refers to shifting employees between different
functions. This will give them more experience and a sense of achievement.
Teamwork: Teamwork is also considered as recognition. Creating teamwork between team
members will improve performance at work. Social relationships at work are essential for any
organization.
Empowerment: Empowerment refers to when employees are given authority to make certain
decisions. This decision making authority is restricted only to the day to day tasks.
Training: Many organizations place a greater emphasis on training. This is considered as
recognition for employees. Training could vary from on the job training to personal development
training.




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Another way to classify Rewards is:


A: MONETARY REWARDS
Monetary incentives reward workers for performance and productivity through money. These
incentives include employee stock options, profit sharing plans, paid time off, bonuses and cash
awards. Additional monetary incentives include annual or semi-annual bonuses, such as mid-
year and end-of-year rewards. These incentives encourage friendly competition between
associates when linked to job performance. Monetary rewards motivate employees to produce
optimally.
Selecting the appropriate rewards is vital to any program's success. The goal in choosing rewards
is to select items that will spark the participants interest or feelings, and support the programs
objectives. Effective rewards will both motivate short-term behavior and provide motivation over
time. There are several types of rewards.
Cash
While incentive program participants often state that they prefer cash to non-cash rewards,
research has shown that cash is a poor motivator due to its lack of "trophy value." In a recent
study conducted by the Center for Concept Development, three of five respondents agree that a
cash payment is perceived to be part of an employees total compensation package and not as
part of an incentive program.

Additionally, cash is quickly forgotten as many participants tend to
spend it on everyday items or use it to pay bills. Given that most people do not generally talk
about cash awards, cash programs do little to generate the interest required to create an effective
incentive program.
Non-cash rewards
Merchandise and other non-cash rewards are more often perceived as separate from
compensation. Accordingly, non-cash rewards tend to stand out as rewards for performance,
which enhances their long-term effect. Branded merchandise and other non-cash rewards have
Types of
Rewards
Monetary
Rewards
Non-monetary
rewards
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high trophy value, bringing greater recognition to the recipient at the time of the award and
possessing a long-term lasting effect that can result in increased engagement in the organizations
goals.
Gift cards/certificates
Gift cards/certificates are prepaid retail cards or certificates which are redeemed at a later time at
checkout. In general, they are available in two types: (1) cards which carry a major credit card
brand, commonly referred to as universal gift cards (UGC), and are redeemable at all merchants
accepting the credit card brand; and (2) retailer-specific cards, issued by well-known merchants,
redeemable only through the issuing retailer. In the 2005 Incentive Federation Study of
Motivation and Incentive Applications, gift cards were ranked as the most frequently used type
of corporate reward.
Merchandise
Merchandise rewards can range anywhere from small branded key chains to high-end
electronics. In a 2005 study conducted by the Center for Concept Development, 73% of
respondents agreed that more stimulating, memorable incentive programs can be built around
merchandise as opposed to cash rewards.

Travel
Travel rewards can best be defined as a face-to-face event designed to motivate, either directly or
indirectly. In a 2005 study conducted by the Center for Concept Development, 51% of
respondents perceived that travel is remembered longer than other incentive rewards.
Experiential
Experiential rewards provide program participants with an experience. This form of reward gives
organizations the ability to offer their employees and customers interesting experiences as
incentives. Examples might include a seaplane flight and lunch, a two hour horse ride on the
beach, a day of sailing for two, a chance to meet a star athlete, or the use of a party planner for an
occasion of the recipients choice. Experiential rewards allow participants to share their
experiences with others and reinforce the reward and the behavior that led to the giving of the
reward.

B: NON-MONETARY REWARDS
Non-monetary incentives reward employee performance through perks and opportunities. These
are used to reward participants for excellent behavior through opportunities. Non-monetary
incentives may include flexible work hours, payroll or premium contributions, ability to work
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independently, training, health savings or reimbursement accounts, or even paid sabbaticals. If it
comes to environmental behavior, often labeling and recognition certificates are used. This may
include stickers, T-shirts with banner logos, etc.
The rewards and incentives are valuable to an employee because they allow workers to learn new
skills and pursue advancement opportunities. For example, a recent graduate may view an
exemplary training program within an organization as more valuable than a higher base salary
because he feels the learning opportunity will benefit his career.
Employee Recognition
Employees who receive recognition for their work accomplishments tend to have increased
morale and positive workplace attitudes. Employee recognition is an incentive employers utilize
to offer feedback and encouragement to employees. Employee recognition rewards include
verbal praise, award ceremonies and public announcements for a job well done. Workplace
recognition rewards occur frequently such as at the end of the day, week or at the conclusion of
the sales month.
Employee Assistance
Many employers offer rewards and incentives through employee assistance programs. These
programs help workers maintain a balance between work and home life by supporting workers'
mental and physical well-being. For example, many programs provide counseling services to
help cope with stress, family issues and substance abuse. Employee assistance programs also
offer discounts to join fitness centers to encourage an active and healthy lifestyle. Some
programs help working parents find daycare and other activities for their children. The purpose
of these programs is to support workers with their home responsibilities so they can remain
focused on their jobs while they are at work. Small businesses can contract with an employee
assistance firm to provide the services that workers need.

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INCENTIVES AND REWARDS AT VARIOUS ORGANIZATIONS
GOOGLE
Shooting straight to the top in 2007 Fortunes 100 Best Companies to Work For, Google was
first for two consecutive years and fourth in the last two years making it the only IT company
that has been in the top five since its appearance in the list (Fortune 2010). According to Google
co-founder Larry Page:
Google is organized around the ability to attract and leverage the talent of exceptional
technologists and business people. We have been lucky to recruit many creative, principled, and
hard-working stars (Google 2010a)
What makes this company so special to work for? Are there incentives policies in place? If so,
what kind and to what extent are they determinant in attracting and retaining people?
In fact, Google seems to give considerable attention to incentives to attract and retain people
going beyond the conventional ones (Table 1).
Having an across-the-board staff 10% raise in 2010 or repricing employee stock options that
have declined in 2009 were some of the initiatives to prevent staff defection to other companies
such as Facebook (Efrati and Morrison 2010).
As recognized in Google third quarterly report:
Our future success depends on our continuing ability to identify, hire, develop, motivate, and
retain highly skilled personnel for all areas of our organization. Competition in our industry for
qualified employees is intense, and certain of our competitors have directly targeted our
employees. (Google 2010b)
Table 1: Key employment and incentive indicators at Google (Fortune 2010).

Benefits Paid sabbaticals No
Onsite child care Yes
Health 100% health-care coverage No
Onsite fitness center Yes
Subsidized gym membership Yes
Work-life Job sharing program Yes
Compressed workweek No
Telecommuting Yes
Diversity % minorities (data from 2009 survey) 35%
% women (data from 2009 survey) 33%
Has non-discrimination policy that includes sexual orientation? Yes
Offers domestic partner benefits for same-sex couples? Yes
Professional
training
Salaried employees (hrs./yr.): Hourly
employees (hrs./yr.):
113
113


Topic Indicator
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Google is even testing a model to try to predict which employees are most likely to leave based
on factors like employee reviews (Efrati and Morrison 2010) while proclaiming many reasons to
work for the company (Table 2).
Table 2: Top 5 reasons to work at Google (Google 2010a).
Nr. Topic Comments
1 Lend a helping hand With millions of visitors every month, Google has become an essential part of
everyday life like a good friend connecting people with the information they
need to live great lives.
2 Life is beautiful Being a part of something that matters and working on products in which you
can believe is remarkably fulfilling.
3 Appreciation is the best
motivation
Weve created a fun and inspiring workspace youll be glad to be a part of,
including on-site doctor; massage and yoga; professional development
opportunities; shoreline running trails; and plenty of snacks to get you through
the day.
4 Work and play are not
mutually exclusive
It is possible to code and pass the puck at the same time.
5 We love our employees,
and we want them to
know it
Google offers a variety of benefits, including a choice of medical programs,
company-matched 401(k), stock options, maternity and paternity leave, and
much more.

According to another research, The Top 10 Reasons to Work at Google used in recruiting
sums up their approach to their employees. These include:
1) Lend a helping hand,
2) Life is beautiful,
3) Appreciation is the best motivation,
4) Work and play are not mutually exclusive,
5) We love our employees, and we want them to know it,
6) Innovation is our bloodline.
7) Good company everywhere you look,
8) Uniting the world, one user at a time,
9) Boldly go where no one has gone before, and
10) There is such a thing as a free lunch after all.

Other Perks in Google include:

They run 11 free gourmet cafeterias at its headquarters and offer all its employees free
gourmet meals.
They offer $5,000 toward an environmentally friendly car and offer free, Wi-Fi coaches
from five Bay Area locations.
As part of maternity, Google reimburses employees for up to $500 in takeout food to ease
the first four weeks at home.
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Other conveniences offered to employees include a workout room with weights and
rowing machine, locker rooms, a massage room, childcare, and five onsite doctors
available for employee checkups, free of charge.
While Googles perks are definitely a factor in their employee engagement, its not the only
factor. Google works hard to create a philosophy and culture that engages and inspires all its
googlers.

An article in Business Week attributes Googles strong employee engagement to two
strategies:
Strategy 1: Create a two-way dialogue on the most important issues on peoples minds, and
Strategy 2: Engage employees in solving problems, not just raising them.
Examples of these strategies in action are every Friday, Google holds a forum called Thank
Goodness Its Friday (TGIF) to have an active conversation and answer questions ranging
from product decisions and external news to internal people-related policies and decisions. In
addition Google encourages employees to attend problem-solving sessions designed to
resolve business challenges. Appropriately called Fixits, these sessions can invite a specific
group of employees or be open to anyone. One recent Fixit addressed particular concerns
regarding career development in a growing business unit.
Despite Googles best efforts, they have recently been losing talent to newer startups like
Facebook and Twitter. Google is striving to solve the problem, however, and have even
developed an algorithm thy say can identify which of its 20,000 employees are most likely to
quit so they can fix the problem.

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TATA Consultancy Services

TCS follows a model which is far ahead of other traditional system, which is Economic Value
Added (EVA). It is not just any reward structure, but an integrated management process aimed at
achieving long term goals, instead short term. It makes sure that the unit performs in a
sustainable and increasing manner. So in the same way every individual employee would be able
to improve his/her performance considerably.

ECONOMIC VALUE ADDED (EVA) MODEL
EVA model was developed by a New York Consulting firm, Stern Steward & Co in1982 to
promote value-maximizing behavior in corporate managers. It is a single, value-based measure
that was intended to evaluate business strategies, capital projects and to maximize long-term
shareholders wealth. Value that has been created or destroyed by the firm during the period can
be measured by comparing profits with the cost of capitalused to produce them.


COMPENSATION MANAGEMENT - EVA MODEL IN TCS

TCS compensation management system is based on the EVA model. It is the basis for giving
incentives to employees and the bonus declared is a part of improved EVA achieved. With the
implementation of Economic Value Added (EVA)-based compensation, the salary of employees
comprised of two parts:
Fixed
Variable

Fixed pay comprised of wages and pension while the variable part of the salary has the
components like bonus, profit sharing and stock options. This was arrived after considering
business unit EVA, corporate EVA, and also individual performance EVA. EVA is calculated as
net operating profit after taxes minus a charge of the opportunity cost of the capital invested. The
variable component in the salary structure of an individual also depends on the rating that he
receives on a scale of
1-5.
Variable pay can be equal to the fixed portion of the salary, providing the cell has shown that
kind of EVA growth. It was not just compensation, the process aimed at employees to also have
got a feeling of ownership for their own unit, and its performance. Each employee is made to feel
as if they are running their business. They had to think like entrepreneurs and know the cost
attached to their business and how will they add value to the investment.

TCS adopted EVA in 1999, when the company had a staff of around 15000, working at several
locations across the world. Through the EVA model, TCS aimed at creating economic value by
concentrating on long term continuous improvement. EVA measured operating and financial
performance of the organization through BSC and the compensation of all employees was linked
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to it. TCS went in for the EVA as during that time, the company was not a public limited
company and hence didnt have a stock option plan. There were several people who played an
important role in the success of the organization, who needed to be recognized. As there was no
wealth sharing mechanism in place, EVA was adopted to focus on continuous improvement
rather than short term goals and also to motivate employees. It was designed to construct a
defined incentive system, which would reward on the basis of profitability.


COGNIZANT
The reward system in Cognizant is similar to that in TCS. Based on the individual and group
performance various awards are given to the employees. These are:

CATEGORIZATION OF INDIVIUAL REWARDS:
1. Star Award
2. Guiding Star Award
3. Road less Travelled
4. Business Enablers
5. Associate of the year
6. E-know-vator
7. Dronacharya award
8. Above and Beyond
9. Smart Techie
10. Biz Whiz
11. Kudos

CATEGORIZATION OF TEAM REWARDS:
Dream Team
Project of the Year

The difference between TCS and Cognizant lies in the reward given. The Cognizant employees
mostly get the cash prizes while the TCS employees get only the reward points which they can
redeem against some goodies.







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KPMG
The reward system of KPMG contributes to the companys competitive profile in the market,
retains best performers and reduces their turnover, increases the motivation of employees and
reinforces companys reputation as an employer of choice in order to attract high caliber
executives.
Other than the reward system they were also providing the benefit of ESOPs to the employees.
The company believes that this develops a feeling of ownership which can have positive results
for both the company and the employee.


INFOSYS
The basis for giving rewards in Infosys is through 360 degree performance appraisal system.
To motivate contributions to and the use of the Knowledge Management (KM) system among
employees, Infosys created a reward system based on knowledge currency units (KCUs).When
employees wrote a document and contributed it to KM, they received KCUs based on ratings
from others who had benefited. For a few years, KCUs could be converted to money, butInfosys
later discontinued the practice so that employees were not conditioned to believe they deserved a
biscuit every time they did something good. KCUs remained a psychic reward and looked
good on performance reviews. The annual excellence award system was also in place.
Other than the rewards, even Infosys was focusing on providing ESOPs to the employees.
According to them, the ESOPs are:
Highly profitable reward system
Method of generating wealth
Offers emotional and financial ownership to employees
Performance management tool for attracting and retaining talent.

Infosys is using performance based approach to give stocks to their employees and uses this as
an effective tool to enhance the performance of employees.






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REFERENCES
Websites:
http://en.wikipedia.org/wiki/Incentive_program
http://en.wikipedia.org/wiki/Perverse_incentive
http://smallbusiness.chron.com/rewards-incentives-workplace-11236.html
http://humanresources.about.com/od/employeerecognition/g/what-are-incentives-at-
work.htm
www.kpmg.com
http://www.slideshare.net/sivapriya28/tcs-reward-system-detailed-report
www.slideshare.net
http://youearnedit.com/blog/18640-is-google-employee-heaven/

Bibliography
Belfo, 2012, EMPLOYEE INCENTIVES IN IT COMPANIES: WHAT CAN WE
LEARN FROM GOOGLE?, Retreived from: www.Academia.edu.
Henry Sauermann, 2008, Individual Incentives as Drivers of Innovative Processes and
Performance.