Understanding Incentives
- 1. Understanding INCENTIVES © Sagar Gaikwad sagargaikwad577@gmail.com
- 2. What are Incentives? • An incentive is something that motivates an individual to perform an action.
- 3. Do a Reward & an Incentive mean exactly the same thing??? • A reward, unlike an incentive or disincentive, is always understood to be merited or deserved. Though offering a reward may function as a motivator to action, or as an incentive in that sense, rewards do not always function in this way. • For example, people are sometimes rewarded unexpectedly for past achievements. They deserve the reward, but, since they did not anticipate it, it does not serve as a motivator. • Very basically, Reward is given to you if you have done something appropriate & Incentives are provided so that you do something appropriate.
- 4. Why are Incentives Provided?? • Incentives are provided to employees / workers / salesmen so that they work intensively. • An incentive program is used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time (which otherwise may or may not be performed without an incentive program). • Incentive programs are particularly used in business management to motivate employees and in sales to attract and retain customers.
- 5. Why incentives are effective?? • Reinforcement Theory: Behavior that is rewarded will be repeated.
- 6. Why incentives are effective?? • Expectancy Theory: Expectancy If I attempt this level of performance, am I likely to succeed? Motivational Force = Instrumentality If I achieve this level of performance, am I likely to be rewarded? E * I * V Valence What value do I place on the rewards available to me?
- 7. What are the Aspects of Incentives?? Incentives, strictly speaking, share a certain set of core characteristics, and the concept has a distinctive meaning. Incentives are a particular kind of offer employed in a negotiation: 1) an offer is made which is an extrinsic benefit or a bonus, neither the natural or automatic consequence of an action nor a deserved reward or compensation; 2) the offer is a discrete prompt expected to elicit a particular response; 3) the offer is usually made in the context of an authority relationship—for example, adult/child, employer/employee, government/ citizen or government/organization; and 4) the offer is intentionally designed to alter the status quo by motivating a person to choose differently than he or she would be likely to choose in its absence. If the desired action would result naturally or automatically, no incentive would be necessary. An incentive is the added element without which the desired action probably would not occur.
- 8. How are Incentives Classified?? Incentives can be to classified according to the different ways in which they motivate agents to take a particular course of action • Remunerative / Financial Incentives: are said to exist where an agent can expect some form of material reward – especially money – in exchange for acting in a particular way • Moral Incentives : are said to exist where a particular choice is widely regarded as the right thing to do, or as particularly admirable, or where the failure to act in a certain way is condemned as indecent. • Coercive Incentives : are said to exist where a person can expect that the failure to act in a particular way will result in physical force being used against them (or their loved ones) by others in the community – for example, by inflicting pain in punishment, or by imprisonment, or by confiscating or destroying their possessions. • Natural Incentives : such as curiosity, mental or physical exercise, admiration, fear, anger, pain, joy, or the pursuit of truth, or the control over things in the world or people or oneself.
- 9. What are the Different Incentive programs?? • Employee Incentive programs: Employee incentive programs are programs used to increase overall employee performance. Employee programs are often used to reduce turnover, boost morale and loyalty, improve employee wellness, increase retention, and drive daily employee performance. • Consumer Incentive programs: Consumer incentive programs are programs targeting the customers of an organization. Consumer programs are becoming more widely used as more companies realize that existing customers cost less to reach, cost less to sell, are less vulnerable to attacks from the competition, and buy more over the long term.
- 10. What are the Different Incentive programs?? • Sales Incentive programs: These programs are primarily used to drive sales, reduce sales costs, increase profitability, develop new territory, and enhance margins. A sales incentive plan (SIP) is a business tool used to motivate and compensate a sales professional or sales agent to meet goals or metrics over a specific period of time. • Dealer Incentive programs: Dealer incentive programs are used to improve performance for dealer, resellers, channel partners and other types of brokers using sales incentive programs. These programs help companies capture market share, launch new products, reduce cost of sales and provide momentum for new launches by incentivizing an external party to drive additional sales.
- 11. What are the different Incentives provided?? • Monetary Bonuses, Profit-Sharing, Share-ownership, Gift-cards, Merchandise, Travel, Experiential etc. • Non-Monetary Better opportunities, flexible work hours, payroll or premium contributions, training, recognition etc.
- 12. What are the different incentive schemes?? There are four general types of tangible incentive program types or schemes widely in use. These include the following, • Quota-Based Programs -- incentives are given for meeting or exceeding a performance goal. • Piece-Rate Incentive Programs -- for increasing rates of performance – doing more of something. • Tournament Programs -- where individuals and/or teams compete with each other for incentives. • Fixed-Rate Incentives – salary-based compensation.
- 13. Individual vs. Group based incentive plans
- 14. Why Incentive Plans Fail?? • Performance pay can’t replace good management. • You get what you pay for. • “Pay is not the only motivator.” (Maslow’s Hierarchy of needs) • Rewards may rupture relationships. • Rewards can have unintended consequences. • Rewards may undermine responsiveness. • Rewards undermine intrinsic motivation.
- 15. Implementing Effective Incentive Plans • Ask: Is effort clearly instrumental in obtaining the reward? • Link the incentive with your strategy. • Make sure effort and rewards are directly related. • Make the plan easy for employees to understand. • Set effective standards. • View the standard as a contract with your employees. • Get employees’ support for the plan. • Use good measurement systems. • Emphasize long-term as well as short-term success. • Adopt a comprehensive, commitment-oriented approach.
- 16. When can an Incentives Plan be called successful?? • A strong incentive is one that accomplishes the stated goal and, • Incentive plan is economical to the organisation.