Importance Of Incentive System

Incentive systems play a vital role in underlying the companies’ goals or desired results. By linking them together, employees are informed and motivated to perform at a higher level, hence meet the desired results. There are a number of incentives used by companies, some are monetary rewards and some are non-monetary rewards. The most common one is incentive pay or pay-for-performance, which has been widely used among companies across the globe even in not-for-profit organisations. However, putting a large amount of money behind the desired results can lead to counterproductive results that are; employees narrowly focus on achieving what is measured or rewarded and neglect any other aspects which are crucial for a company’s growth; or top

Therefore, the companies provide rewards to top-level managers who meet certain targets over periods greater than one year. The most common form of long term incentive is stock or equity based incentives (i.e. stock option). Stock option plan gives managers the right to buy the company’s stocks at a specific price and time in the future, encouraging top-managers to sustainably maximize the firms value. This plan could satisfy more needs than the short term incentives, namely physiological needs, safety needs, and esteem needs. By receiving these rewards means that those managers have achieved challenging targets, hence they gain respect from their subsidiaries, colleagues and even their bosses. Therefore, an effectively motivated rewards should include non-monetary incentives, such as autonomy, recognition or promotion, together with monetary rewards to fulfill individual needs.

In conclusion, monetary incentives are indispensable in every organisations. They emphasize the desired results and motivate employees to achieve certain targets. As a motivator, monetary incentives exploit on fulfilling employees’ needs. However, monetary incentives can bring a number of disadvantages to a company, if it inappropriately applies the incentive