Developing Effective

Incentive Plans
 Learning Objectives

• Why do incentive plans fail?

• When to use an incentive plan?
• Specific considerations in establishing an incentive plan?
 Developing Effective Incentive Plans

Incentive plans fail when:

The workers does not believe that effort on his or her

part will lead to obtaining the reward.
The reward is not important to the person.
Unfair standards
Fear of a rate cut
Group restrictions
Lack of understanding
Lack of required tools or training
 When do you use incentive plan?

Use incentive plan when:

 Units of output can be measured.
 There is a clear relationship between employee’s effort and
quantity of effort.
 The job is standardized, the work flow is regular and delays are
few or consistent
 Quality is less important than quantity or if, quality is
important, it is easily measured and controlled.
 Competitive conditions require that unit labor costs be known
and precise.
Specific considerations in establishing an incentive plan

• Ensure that effort and rewards are directly related

• Make the plan understandable and easily calculable
by the employees
• Set Effective standards
• Guarantee your standards
• Guarantee an hourly base rate
• Get support for the plan
Characteristics about Rewards