Incentives and Employee

Benefits Noida
 Incentives
Noida

An incentive is something that motivates or drives one to do something or

behave in a certain way. 

There are two type of incentives that affect human decision making. These
are: intrinsic and extrinsic incentives.

Intrinsic incentives are those that motivate a person to do something out of

their own self interest or desires, without any outside pressure or promised
reward. 

However, extrinsic incentives are motivated by rewards such as an increase

in pay for achieving a certain result; or avoiding punishments such as
disciplinary action or criticism as a result of not doing something
 Incentives
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The incentives and benefits programme—especially in the 21st century—is

not an act of merciful giving or whimsical actions and most employees ‘expect’
the package to be unique, attractive and motivating. (Milkovitch and Newman
2005; Suri et al 2003)
 Employee Benefits
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Employee benefits and benefits in kind (also called fringe

benefits, perquisites, or perks) include various types of non-
wage compensation provided to employees in addition to their
normal wages or salaries. 

In most countries, most kinds of employee benefits are taxable to

at least some degree. 
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 Examples of these benefits include: housing (employer-provided

or employer-paid) furnished or not, with or without free utilities;
group insurance (health, dental, life etc.); disability
income protection; retirement
benefits; daycare; tuition reimbursement; sick
leave; vacation (paid and unpaid); social security; profit
sharing; employer student loan contributions; conveyancing; long
service leave; domestic help (servants); and other specialized
benefits.
The purpose of employee benefits is to increase the economic
security of staff members, and in doing so, improve worker
retention across the organization. As such, it is one component
of reward management.
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Characteristics of a Desirable Wage Plan

 Simple
 Beneficial
 Equitable
 Guaranteed minimum wage
 Balanced
 Incentive-oriented
 Quality output
 Certainty
 Cost-effective
 Flexible
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Pay for Performance Systems

There are four pay for performance approaches that are currently being
put to use, namely:

 Merit Pay: Merit pay, merit increase or pay for performance, is

performance-related pay, most frequently in the context of educational reform
or government civil service reform. It provides bonuses for workers who
perform their jobs effectively, according to easily measurable criteria.

 Variable Pay: Variable pay is the portion of

sales compensation determined by employee performance. When
employees hit their goals (aka quota), variable pay is provided as a type of
bonus, incentive pay, or commission. Base salary, on the other hand, is fixed
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Pay for Performance Systems

There are four pay for performance approaches that are currently being
put to use, namely:

  Skill-based Pay: Skill-based pay is a salary system that determines an

employee's pay based on his or her knowledge, experience, education or
specialized training. Depending on the company, the employee might also
receive a higher salary for earning formal certification in his or her industry.

  Competency-based Pay: Competency-based pay is a pay structure that

compensates employees based on their skill set, knowledge, and experience
rather than their job title or position. A competency-based pay plan
encourages employees to reach the pay rate that they want by taking charge
 Incentives and Employee Benefits
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Methods of Wage Payment

There are two basic methods of wage payment.

 One method relates to the hours the employee is at work, regardless

of his output (time rate system).

 The other method is related to the production or output, regardless of

the time taken for production (piece rate system).
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Time Wage System

 In this system, the worker is paid on the basis of time spent on the work
irrespective of the amount of work done.

 The basis of this time may be hour, day, week or month.

 Incentives and Employee Benefits
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Piece Rate System

 Under Piece rate system, the workers are paid at a stipulated rate per
piece or unit of output.

 In this system, the rate is fixed per piece of work and the worker is paid
according to the number of pieces completed or the volume of work done
by him.
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Essentials of a Sound Incentive Plan

 Guaranteed minimum wages
 Simple
 Equitable
 Economical
 Flexible
 Support
 Motivating
 Prompt
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Features of Incentive Plans

The characteristics of these plans are as follows:

1. Minimum wages are guaranteed to all workers.

2. Incentives by way of bonus, etc., are offered to efficient workers for

the time saved.

3. A standard time is fixed and the worker is expected to perform the

given work within the standard time.
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Individual Incentives
Individual incentive plans are the most widely used pay for performance plans
in industry.

1. Piece rate work plans

2. Standard hour plans

3. Merit pay raises

4. Lump sum merit payments

5. Sales incentives and commissions.

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Successes and Failures of Incentive Plans

 One important advantage of incentive plans is that they motivate
employees to show superior performance.

 Many PFP (Pay for Performance) systems have failed because the
performance measure that was rewarded was not related to the
performance objectives of the entire organization as a whole and to those
aspects of performance that were most important to the organization.
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Group or Team-based Incentive Plans

Team based incentive plans reward all team members equally based on
overall performance of the team members.

Some of the important team-based incentive plans may be listed thus:

1. Preistman’s production bonus

2. Rucker plan

3. Scanlon plan

4. Towne plan

5. Co-partnership
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Organization Wide Incentive Plans

Organization wide incentive plans reward employees on the basis of the
success of the organization over a specified time period. There are three
basic types of organization-wide incentive plans:

 Profit-sharing: employees receive bonuses tied directly to the company's

overall profitability

 Gain-sharing: bonuses are more closely tied to the performance of

specific employees or groups of employees.

 Employees Stock Ownership Plan

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Fringe Benefits
The term ‘fringe benefits’ refers to the extra benefits provided to employees in
addition to the normal compensation paid in the form of wage or salary.
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Need for Fringe Benefits

1. Employee demands

2. Trade union demands

3. Employer’s preference

4. As a social security

5. To improve human relations

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Objectives of Fringe Benefits

 To create and improve sound industrial relations.

 To motivate the employees by identifying and satisfying their unsatisfied

needs.

 To provide security to the employees against social risks like old age
benefits and maternity benefits.

 To promote employees’ welfare.

 To meet the requirements of various legislations relating to fringe

benefits.
 Incentives and Employee Benefits

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Types of Fringe Benefits

1. Payment for time not worked

2. Employee security

3. Safety and health

4. Workmen’s compensation

5. Health benefits

6. Voluntary arrangements

7. Welfare and recreational facilities

8. Old age and retirement benefits