Types of incentives

Types of incentives

Payment By result.

At the beginning of modern world the most common used incentive type was payment.  Workers are rewarded based on the number of units produced or the numbers of hours needed to perform a task. However this scheme received criticism due to the fact that employees will focus more on the quantity of the production more than the quality of the service or the product.  (Dessler, 2003, p. 335-336).

Skills-based pay

In this type of payment system employees get paid according to the skills and competencies they have. This scheme of reward encourages the employees to enhance their current skills and thrive to acquire new ones in orders  to increase their pay. The workplace that adopts the skills-based pay is characterized by multitasking and flexibility which allows it to be proactive and effective in meeting the customers needs. (Torrington,Hall, Taylor & Atkinson 2009, p163-164).

Profit sharing

 In this compensation system the company rewards employees by giving them equity shares or percentages of the profit.  The goal of this scheme is to make employees committed to their company since the pay is positively correlated with the profit leading to a mutual interest for both parties. The profit sharing encourages team spirit, aligns all the employees toward achieving the same goals and ensures that employees are been rewarded equally. However, as any incentive system, profit sharing has its drawbacks; According to employees the pay may decrease in case the company doesn’t attain the expected profit.  Furthermore, they cannot perceive the impact of their  work on the profitability of the company because employees receive the money despite their performance, hence the incentive becomes a right more than a motivating factor.(Torrington, Hall, Taylor & Atkinson 2009, p163-164).

Performance-related pay 

This scheme is based on the assumption that employees will perform better if they are offered monetary incentive for well performed tasks. There are two types of performance-related pay. The merit-based system: based on the evaluation of the employees’ performance against objectives that were already set. In the goal-based system, the goals and objectives to be attained are agreed on by the employer and the employee on monthly basis. For this type of incentive to work, employer and employee should agree on S.M.A.R.T* targets and objectives to be attained

(Torrington, Hall, Taylor & Atkinson 2009, p163-164).

Theories of motivation:

The core focus of the theories of Motivation is the needs of individuals. In these theories, pioneers in management and thinkers attempted to explain the reasons behind the needs of individuals, to understand why these needs change and to focus on the relevant factors that motivate them. In these motivational theories, motivation is considered as the outcome internal factors that drive the individual toward the satisfaction of his needs.  Main Theories of motivation are Herzberg’s motivation hygiene, Alderfer’s ERG theory, McClealland’s learned needs theory, and Maslow’s Hierarch of needs. (Beardwell & Claydon, 2007, p. 492)

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