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The Incentive System Offered By Companies

Executive Summary

This article talks about the many types of incentive systems, their applications, benefits and drawbacks. The reward system proposed by the firms to the employees is considered to be the simplest way of motivating and attaining employee loyalty. It also helps the company its goals and targets as employees are the engine driving make for a business. In this specific article, different kinds of praise systems are discussed. These prize systems can be applied to both individual and organizations. The rewards are mainly predicated on the performance of the employees on attaining the set targets.

The types of reward systems reviewed are

These prize systems are practised by most approaching, small to multinational national companies.

This article talks about each kind of pay back systems along with the examples and their applications.

There are always benefits and drawbacks of almost any system. Though the reward systems largely exhibit the advantages of offering the compensation system, nevertheless the disadvantages should not be eliminated.

It is management's responsibility to determine which kind of pay back system best suits the company's aim remains in the budget.

There is no doubt that companies take care of the compensation system within the company to get and retain the recruiting the organisation needs to achieve its goals.

Before speaking about about the rewards system, its implementation, benefits and drawbacks, it's important to understand why companies have plans of incentive system and how it demonstrates on the corporate culture and its own objectives.

"The meshing collectively of believes, business guidelines, styles of functioning, ingrained behaviours and behaviour, and work environment determine a company's commercial culture (Thompson, P415).

A healthy corporate and business culture can only just be maintained in case a company has a best practice of offering a much better work place for employees. This best practice includes offering rewards and recognitions to the employees. This prize and acceptance best practice falls under the category of motivational and control styles of a firm.

The compensation and acceptance has its origins long back again with the presence of individual. Reward and popularity aren't only implemented in the companies, it could also be observed in our daily life. This compensation system starts off from the first childhood stages of an man. "Do this and get this concept has always been helpful in attaining the objectives.

Employee compensation system is a way used by companies to praise for performance and motivate employees separately or in an organization. The rewards systems are not related to the salary. However, it can be monetary. The principal objective for this program is to lure top employees and increase their performance.

There are keys to develop an incentive program and companies need to follow.

  • Company must identify the goals that pay back program will help.
  • Need to look for the desired standard of worker performance that will reinforce the goals.
  • Finding out the main element performance indicators, dimension of performance based on employee achievement individually or in an organization.
  • Determining the right prize program to recognise the provided work of the employees.
  • Lastly, the business needs to evidently communicate the reward program with the employees

Reward systems contain two elements. First of all the mutual assistance between staff and the workplace is crucial element of the occupation romantic relationship if anything is to be made as is achieved through the concept of financial gain for the worker. Second, pressure and conflicts are engendered through the reasoning which makes buying of labour vitality the reward to one group the price to the other. (RECRUITING Management, P-239, John Bratton, Jeffrey Silver)

There are three aims for a firm to have reward management.

  • To draw in and wthhold the valuable employees
  • Increase the staff performance and commitment
  • Ensuring the conformity with the laws and regulations.

Though the company has the objectives to be performed, these targets are needed to be achieved inside a certain budget established for the rewards. The place rewards should compete enough to appeal to the account of the company. The reward system should be designed in order to continuously enhance the efficiency and control cost.


There will vary praise programs for both individual and group performance.

Variable Pay

It is also known as pay-for performance. It really is a reimbursement program in which a part of employee's pay is known as "at risk. Varying pay can be related to the entire company's performance, the overall result of a specific business unit, specific achievement, or blend of either circumstance. It may take forms like, including bonus programs, stock options and honours for particular successes. Many companies would prefer to pay less in real bottom salary but provide a huge praise program instead.


This program is very common all around the world. It practice is common in sales organisations, fulfilling the individuals on his/her sales success. It not only motivates the individual but brings in more talent to the company rewarding the business in two ways. Indeed, increasing numbers of businesses have turned from individual bonus programs to 1 which rewards contributions to corporate performance at group, departmental, or company-wide levels. Few analyst found the bonuses as a short way of desire. By rewarding an employee's performance for the previous time, say critics, they encourage a short-term point of view rather than future-oriented achievements. These programs need to be carefully administered to ensure that the rewards do not go beyond individual's basic tasks.

Profit Sharing

It is the strategy of offering the staff to adopt an agreed ratio of company's earnings. It really is normally equal to the percentage of the worker's salary and is disbursed at the end of the year when the company closes its accounts and works the statistics for the earnings. It might be paid in terms of cash, or can be exhibited as a worker retirement plan. An advantage for a firm offering this type of reward is that it can keep fixed costs low. The idea behind profit-sharing is to reward employees for their efforts to a company's achieved profit goal.

"It motivates employees to stay put since it is usually structured to encourage employees who stay with the business; most profit-sharing programs require an employee to be vested in the program over a number of years before receiving any monies. Regrettably, since it is honored to all employees, it tends to dilute individual contributions. (Jack Stack)

Stock Options

In recent years stock option is becoming extremely popular in many mid size to multinational companies. This prize program is suitable for satisfying middle management and other employees. This incentive program allows the worker to buy a specified number of companies show at a fixed price for a specified time period. The number of options a company can offer are usually equal to a percentage of company's exceptional shares.

This program is a permanent motivator and helps increasing the worker commitment rate. After a worker becomes completely vested, the employee then can purchase number of stocks from the company at attack price. After sometime, the employee can either retain it or sell it in the wild market.

By offering the stock option the company takes advantage in taking taxes deduction for compensation expenditure when it issues shares to the employee. The other advantage of offering this compensation is that this option can be considered a portion of payment hence will not require to be exhibited as a cost in the books.

Group based incentive system

As more smaller businesses use team buildings to reach their goals, many internet marketers look for ways to compensate cooperation between departments and people. Bonuses, profit showing, and commodity can all be utilized to encourage team and group accomplishments. An entrepreneur can pick to reward individual or group contributions or a blend of the two. Group-based prize systems derive from a dimension of team performance, with specific rewards received on the basis of this performance. While these systems encourage individual attempts toward common business goals, they also tend to encourage underperforming employees along with average and above-average employees. A reward program which recognizes individual accomplishments in addition to team performance can offer extra motivation for employees.


Motivate employees:

Rewarding employees isn't just the best way of keeping the devotion in the employees but also is a easiest way to motivate. It is a way of appreciating the employees for all their hard work, attempts that they put towards the business. What matters is that you could actually motivate your employees to contribute more for the business and then for his own progress.

Boost performance:

Rewards programs will be the performance boosters. It results a better output each hour of work making your business more cost-effective. It increases your sales without hiring more people.

Provide sense of content:

Good motivation programs provide sense content among employees. Since they know that what they do for the company is rewarded again, they enjoy work plus they look forward to doing well every day, not to mention the significant contributions they offer for the company.

Provide sense of well worth:

Employee praise programs provide sense of value among employees because they know that what they do is right. Once the employees achieve the set in place target and be eligible the motivation, the employee understands that he/she can do more than their normal output. Thus giving them reasonable to understand themselves and their work.

Open communication among employees:

Since some worker incentive programs require teamwork, they can also provide a means for employees to communicate well to one another. Employee incentive programs can get rid of the lack of communication among employees and can help open up communication.

Increase the profit of the business:

This is the principal reason why companies have worker incentive programs. It's the result of having employees with the right desire, boosted performance, sense of content and worth, and better communication among themselves.


The only disadvantages that i could think of is the fact that by offering the rewards to the employees for each achievement may spoil the behavior of the employees and may only take affinity for work for the sake of rewards. Like we have talked about that rewards are additional to salary and sometimes these rewards may be greater than the actual salary.

The praise program to the individual is without doubt a drive to the employee but may result in inciting jealousy amongst others.

The other disadvantage is the fact that if offering stocks and options is the choice then it may become little risky for the company and the employees. When the stock punch price is greater than the marketplace price of the stock, the worker option is worthless.


British Petroleum

"At BP prize is much more than simply your salary. BP offers its employees a competitive reward package which includes salary, allowances, add-ons, share programs and health and retirement provisions as well as other benefits.

The salaries are designed to attract and retain the highest quality employees to help us maintain our success as a company and encourage employees to continually develop their skills and enhance their contribution.

Your salary will be analyzed yearly, usually in early spring, to ensure which it remains competitive. This is done by checking it with current degrees of pay on the market and your peers.

In addition to your salary, allowances may be paid in acceptance of particular areas of your task, such as unsocial working hours, location or increased responsibility. (British Petroleum).

Retrieved on Nov-09-09 from http://www. bp. com/sectiongenericarticle. do?categoryId=9009666&contentId=2017892


Tesco employees are to talk about in more than 25m of vouchers and cost savings - as well as a supplementary day's getaway - this yuletide.

About 268, 000 employees at the supermarket giant's stores, distribution centres and mind offices will obtain up to 96 each of discounts on Tesco products.

All workers will also get a day's paid leave - called a Personal Day - as Tesco thanks a lot them for his or her help through the occupied festive period.

Louise Pocock, UK benefits manager at Tesco, said: "Following our try to make Tesco a great destination to work, we always make an effort to increase and improve benefits offered to all customers of personnel.

"We are incredibly aware that this Christmas and then 12 months will be one of the tightest times for budget, and because of this, Tesco is committed to offering savings and discount rates to staff throughout the year. "

Retrieved on Nov-09-09 from http://www. tesco. com/


Stack, Jack. "THE TROUBLE with Profit Posting. " Inc. November 1996.

http://www. enotes. com/small-business-encyclopedia/employee-reward-recognition-systems

http://books. google. ca/books?identification=EZ1CLRm3FnQC&pg=PA240&lpg=PA240&dq=types+of+reward+systems&source=bl&ots=e912XicC7p&sig=gPAfILS6YypFxp3ToyuhvHab7vU&hl=en&ei=Sh_3SpuXOZ3i8AbSyrXzCQ&sa=X&oi=book_result&ct=result&resnum=7&ved=0CCMQ6AEwBg#v=onepage&q=types%20of%20reward%20systems&f=false

Human Resources Management: Theory of Practice writer John Bratton & Jeffery Gold

http://www. bp. com/sectiongenericarticle. do?categoryId=9009666&contentId=2017892

http://www. personneltoday. com/articles/2008/12/09/48668/tesco-employees-share-25m-in-vouchers-and-savings. htm

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