Incentive pay can also be aptly described as paying for performance. According to Bryson et al. (2012), the concept of paying for performance is as old as the farming method of sharecropping, where a farmer who works on someone’s farm is paid with a portion of the harvest. Bryson et al. (2012) further point out that incentive pay or paying workers with a share of a company’s output or revenue existed in the UK, France, Japan and US at least since the 1840s. Nevertheless, the most important thing is that incentive pay is still used by various organizations in the current world, and it provides several advantages as well as disadvantages to both the workers and their respective organizations.
Most employees would appreciate incentive pay in the sense that it is sometimes unfair to pay all employees the same salary when obviously some employees worker harder than others. Additionally, some employees deliver better results for their respective companies. For instance, some employees are skilled at sales, and can contribute significant amounts of revenue to the company. Therefore, it makes sense for companies to pay such employees a certain percentage on their sales on top of the base pay. It is also a way of motivating other employees to work more and smarter, achieve their targets, and consequently, get better pay (Gerhart, 2017). Therefore, incentive pay in this aspect is firstly used to motivate employees; the harder they work and the better the results the better the pay. Employees at least feel that their efforts are recognized and that their companies value their efforts. Secondly, incentive pay to the organization encourages employees to achieve certain targets, and this is beneficial to the company because that means tasks are completed in time, and perhaps better revenues are realized. In the current competitive business world, organizations would certainly want to be ahead or at par with their competitors, and that can only be achieved through a dedicated and motivated work force.
Delegate your assignment to our experts and they will do the rest.
One of the biggest advantages of incentive pay to an organization is that this method helps in reducing the wage bill. In other payment methods, especially where senior members are paid higher wages, or employees are paid based on their experience, a situation can arise when a company registers losses and employees have to be paid regardless of any pitfalls. Definitely, a company can have difficulties paying employees because of a huge wage bill in spite of the losses. However, incentive pay cushions a company against such situations because in the event of losses, employees’ payments are adjusted according to those prevailing circumstances (Gerhart, 2017). Therefore, a company will likely remain financially healthy despite losses or other undesirable events.
However, incentive pay also presents some problems. The biggest problem arises in the event of losses where employees have to be paid lower wages. In this case, employees’ morale could probably reduce, and consequently, they could lose motivation to perform (Martocchio, 2017). The situation can even be dire if a company uses incentive pay without having a base pay. Employees may consequently fail to meet their daily needs, and can obviously contemplate working for organizations with better payment terms.
In conclusion, incentive pay is mostly used by organizations to motivate their employees based on the fact that some employees perform better than others, as well as to push employees to achieve the set targets. This mode of payment is best in motivating employees especially when there is a base pay and the incentive is paid for performing beyond the targets. However, this method can lower employees’ morale when they do not achieve their targets or when losses occur in a company and are not cushioned against financial difficulties. Therefore, as much as companies want to motivate employees, it is also best to have reasonable incentive pay schemes.
References
Bryson, A., Freeman, R., Lucifora, C., Pellizzari, M., & Perotin, V. (2012). Paying for performance: incentive pay schemes and employees’ financial participation. CEP discussion paper , 1112 .
Gerhart, B. (2017). Incentives and pay for performance in the workplace. In Advances in Motivation Science (Vol. 4, pp. 91-140). Elsevier.
Martocchio, J. J. (2017). Strategic compensation: A human resource management approach . Pearson Education.
