Today, competition between the businesses is extremely high thus companies need to find ways to be competitive. Organizations prepare the best market strategy to increase the company performance and the ways to keep their employee motivation on the highest level to perform well within the competition. At that time, several incentive pay programs play an important role for every organization to perform well within the competition.
Creating and implementing of incentive pay system supports to solve organizational problems to align the preferences of business and employees. In addition, the system serves as an organizing tool to identify and attract the most capable employees since companies need to deliver the product or service within targeted timeframe.
Since organization success depends on both customers’ satisfaction (outsource) and increase employees’ productivity and commitment (internal source), today companies attempt to attract improving employees’ performance by using various flexible incentive pay programs. Careful design of incentive pays program and rules of administration are crucial to the effective management of an organization.
Incentive Pay and Purpose of Incentive Pay System
Incentive pay is a form of direct compensation where employers pay for performance beyond the normal expectations to motivate employees to perform at higher levels. (www.uslegal.com, 2001-2014).
Employers are practicing the incentive pay systems to promote employees particular behavior and performance to get more involved in the organizational development and which is essential for the organization’s success. So employers use incentive pay program as an effective tool for employees to achieve their goals and improve employees work performance.
The purpose of all incentive plans is to encourage employees to achieve specific organizational goals such as increasing productivity and profits, improving product quality or customer service quality and decreasing cost.
Relationship between Incentive Pay and Employee Work Performance
An incentive pay program can reward employees who continue to produce superior work or encourage employees who already produce good work to best. Sometimes, use an incentive system when employees are lack of enthusiasm of getting down to work and improving things. If everyone in the same job classification gets the same pay, there is no real incentive to do an outstanding job (French, 1990). Various incentive plans used to motivate all employees such as production staff, sales staff, administrative staff and managerial and professional staff on an individual basis. To be improved employee work performance, the incentive pay programs need to be fairly matched with the employees’ expectation. Properly designed and maintained incentive pay program has the potential to increase employees’ productivity and work performance.
There are three main types of incentive plans an organization can be practiced. These...