In this article we will discuss about incentives, profit-sharing and bonus of employees.
It is a reward or encouragement or inducement to an employee for the hard work and efficiency at job, assigned by the organization. It is for motivating employees to do better and harder.
Incentives are an additional remuneration payable to efficient workers for their meritorious performance in terms of time, costs and quality to motivate them to be more productive.
Incentive may be classified into:
1. Financial Incentives.
2. Non Financial Incentives.
1. Financial Incentives:
Money is the main element of financial incentives. Financial incentives involve money payment by the employer. It boosts the enthusiasm and self-confidence of the workers. It provides the workers with economic security and gives the worker a social security. These are for better productivity and performance. Financial incentives include higher wages and salaries, bonus, profit sharing; commission, increment etc.
2. Non Financial Incentives:
Non-financial incentives do not involve money payments. These are also important in motivating employees. Non-monetary incentives are useful in increasing production and efficiency.
(a) Job Security:
Nothing can motivate a worker, appointed temporarily, better than provision of job security. Even if a temporary worker puts in greater efforts, lack of job security will always pose a threat. If such a worker is given job security, he will perform much better.
(b) Challenging Work:
Workers, who are dynamic in nature, do not show preference for routine jobs. They are always ready to accept challenging assignments. It is, therefore, the duty of the employer, to understand the capabilities of every individual in the organization and accordingly assign him work.
It is important that the employer recognizes hard work. Even a word of appreciation from employer would motivate the employees to maintain the same level of performance or do even better. Recognition need not necessarily be in the form of tangible benefits to employees. It may be any gesture from the employer, which should come at the right time.
(d) Better Designations:
The designation of an employee is yet another motivating factor. Employees do show preference for certain designations. A salesman, for example, would like to be designated as a sales executive.
(e) Opportunities for Advancement:
There should never be a stagnation point for any employee during the prime time of his career. The employer must always provide opportunities for his employees to perform well and move up in the hierarchy.
(f) Participation in Decision Making:
Another non-financial incentive that stimulates any employee is his involvement in certain crucial decisions. For example, if the management decides to buy new machinery for the factory, the workers’ viewpoints may be secured before making the final decision.
The management can encourage healthy competition among the employees. This would, certainly, motivate them to prove their capabilities. The management can also rank the employees according to performance. Such of those employees who have performed very well may be given merit certificates.
Characteristics/Requirements of a Good Incentive Plan:
The essentials of a good incentive plan are:
a. It should be simple and easy to understand.
b. It should not be costly to operate.
c. It must be discussed with the employees before its implementation.
d. It should assist in supervision.
e. It should be able to evaluate employee’s performance accurately.
f. For each job, a basic rate must be fixed. It is the minimum wage, which each worker should get either on hourly or daily basis.
g. It must induce co-operation among the employees.
h. It should encourage worker to perform more and better.
i. It should be acceptable to both employees and employer. The management will accept only if it is economical whereas employees will accept if it gives due share to them in increased production.
j. It should ensure sufficient monetary compensation and recognition to workers for their increased work effort, output and productivity.
k. It should ensure reduction in unit production cost.
l. The methods of doing the job should be standardized through work- study techniques.
m. It should eliminate distrust between the employer and employees.
Profit sharing refers to the process whereby companies distribute a portion of their profits to their employees. It is also known as “deferred profit-sharing plan” or “DPSP”. The profits may be distributed in the form of cash, stocks, or bonds, which can be given at the time of retirement or transfer to pension or provident fund.
The base salary of the employee will be taken into consideration and depending upon the amount the profit will be shared. Those employees having higher base salaries will get a higher share of the profits to be shared.
Profit sharing usually occurs annually after the final results for company profitability have been calculated. Profit sharing is a gesture extended by the company to make the employees feel that they are also part of the company. Any employee, who is well taken care of, will perform better.
Brings employees together to work towards a common goal. Their sole aim will be the success of the company.
a. Motivation levels will be high.
b. The employee focus will be on profitability.
c. Increases commitment to the organization among the employees.
d. Bridges the gap between the employee and employer.
e. Promotes the well-being of the employee.
f. Additional income for the employee to lead a comfortable life.
a. The salaries of the individual employees go up equally, not on the basis of merit or promotion.
b. In the case of smaller companies the drastic fluctuations in the earnings of company’s employees may affect the personal earnings of the employees.
c. The focus of the employee may be on the profit rather than on quality.
Bonus is a type of financial incentive given to employees, often as a reward or to increase morale and productivity. Bonus can refer to a number of different things depending on the company by which one is employed, but it is often directly related to the business’s income throughout the fiscal year.
With a bonus, an employer offers employees a one-time payment of a specific amount. The amount of the bonus is typically unknown to the employee or employer, and is determined when the outcome is achieved.
There are many reasons that an employee might receive bonus. Excellent performance on the job that goes above and beyond expectations is one of the most common reasons, and this type of bonus is usually determined by one’s superiors. A bonus is generally awarded once a year. The time the bonus is awarded varies by employer, but most bonuses are given out around the holiday season.
Organizations use bonus pay as a way to improve morale and increase productivity among their employees, as well as to show appreciation for hard work and a job well done. It can be a great way to encourage employees to come to work on time and be ready to do their best throughout the day.