Merits & Demerits of Employee Incentives

Employees stay in a place where they get respect and an appropriate salary. Today, employees pay a lot of attention to the work environment and how companies treat their workers. Companies are also taking steps to make sure employees are safe and find the environment encouraging. This is easily made possible through the reward system that is in place. Along with the regular salary that they get, employees are attracted to other compensation benefits like bonuses, stock options, pensions, and much more. It gives them the energy and motivation to work at their best level. In the current business environment, companies provide;

• Free or low-cost meals
• Flexible timings
• Remote work
• Work-life balance

It is a win-win situation for both the company and the employees when there is a proper reward system. The most challenging part of any reward or incentive system is maintaining it even with changing business scenarios. Considering the benefits linked with reward policies, companies are able to enjoy the following;

• Increased productivity
• Higher profit margin
• Declined employee turnover
• Reduction in grievances

Why do companies offer incentives?

Basically, providing incentives to the employees is a decision made to attract and retain top talent. It has become a go-to strategy presently, as it is evident that employees stay when they are offered something equal to their experience and work. Although there are several effective ways in which companies implement incentive programs, each has its own limitations. Similarly, employee bonuses are like a quick fix where employers try to show their appreciation for the work done by the employees and reward them for the same. Incentive and bonus programmes are both goal-driven and meant to motivate employees to work efficiently and enhance their productivity.

Incentive and bonus plans are carefully designed after considering various crucial factors like size, net worth, and the policies and procedures of the business. They also include a one-time bonus that is provided to employees according to the rules of the company. Just like any other factor, it has advantages and limitations that are explained below.

Merits of Employee Incentives:

#1:- Creates healthy competition:

When there is competition, employees will be trying their best to prove their abilities. Instead of going for the age-old method of pulling others down, people today are more understanding of the healthy competition that they have in their workplace. Only a positive work culture can foster this kind of positive competition among the employees.

#2:- Increased productivity:

Offering additional benefits like incentives will drive employees to their best performance. It is considered to be the most effective way of boosting productivity. Designing a structure where high-performing employees are recognized will help cultivate the idea that good performances will be rewarded in the best possible way. This will also ensure that low-performing employees are given the opportunity to improve and develop themselves.

#3:- Encourage retention:

When employees are given the best incentive program, there is a steady increase in job satisfaction and an improvement in performance. With proper implementation of the program, employees will not seek any other job. Generally, employees will look for work elsewhere when they feel they are underpaid. But with incentives and bonuses, employees will remain motivated and will be engaged with their work.

Demerits of Employee Incentives

#1:- This leads to unnecessary conflicts

Although following a standard employee incentive program is a huge blessing for employees, it can sometimes cause unwanted conflicts in the workplace, destroying the vibe and peace of the environment. Employees will be forced to perform more than their capacity, which will also result in a negative competition. Employees might also misunderstand the whole process as being in favor of particular high-performing employees. In order to eliminate these issues, companies must be ready to be transparent in their program and address conflicts or misunderstandings directly without delay.

#2:- Misaligned Incentives

Providing incentives to employees is a huge responsibility for the organization. To make it a success, the incentive program must be designed in such a way that it aligns with the company’s goals and objectives. The performance results should be carefully curated to determine which incentives will be provided to each employee. Thus, companies must ensure they are focusing on long-term goals and implementing different plans and programs in line with the same.

#3:- Encourage resentment

In the case of incentives, there will be different expectations between the employer and the employee. This creates a huge gap between them, and when the employees feel they are not performing at a high level, they will start to dislike the job and start looking elsewhere. This will allow them to not perform at their best level. On the other hand, some employees will make their performance appear to be higher, whereas in reality, it will be below the level required for incentive programs. These challenges must be faced and brought to an end so that there is no disruption in the organization.

There are other points that will be true for other businesses. However, employee incentive programs are a way to ensure employees are needed. It is a program that makes people believe they belong to the company. Irrespective of the nature of your business, incentive programs should be planned and calculated according to the needs and goals of the organization. This is the main reason why these programs must be carefully planned beforehand so that there are no misconceptions between the employer and the employees when it comes to job satisfaction and work-life balance.