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Salary Incentives

Updated on December 12, 2012

Introduction to salary incentives

Managers and business owners are always looking for ways to better motivate their employees. More motivated employees means higher levels of production and greater overall profit. One way to increase employee motivation is to offer them a salary incentive.
What exactly are salary incentives? A worker incentive in the general sense is a financial reward for work well done. This is done both to make employees happier and to insure that they are motivated to continue the good work. It can be done in the form of bonuses given at various times for good work output or in other ways. A salary incentive specifically means that the company gives year end bonuses or shares of the profits to employees.

Casual Incentives

Casual incentives are ones that are given in a mainly spur of the moment manner. These are often bonuses given to employees for a job well done and there is no structure for predicting when they will occur. They may be monetary rewards given on a day to day basis or as a year end salary increase.

Structured Incentives

Structured incentives are ones that it is easier for employees to predict because there is a well understood structure of links between productivity or good decision making and the rewards. For instance, there may be a standardized salary increase put in place if a team finishes a certain project ahead of schedule. Or they may be allowed time off and given pay for the remainder of the time that was allotted for the project.

Annual Incentives

When talking specifically about salary incentives, mostly what is being discussed relates to annual incentives. Annual incentives are year end bonuses or a year end salary increase. Sometimes they take the form of profit sharing, wherein the employees get a share of the profits (reflected in a raise in their salary) if the company makes a greater profit.

Pros and Cons

Some of the pros of salary incentives are well known: they help employees work harder and perform better. They will often also increase the sense of affinity between employers and employees. If salary incentives are in the form of some sort of annual salary increase on a profit sharing type model, it also encourages a sense of pride and belonging on the part of the employee.

A con or drawback to salary incentives is that they can have the affect of making employees competitive or feel that managers are motivated by a favouritism. This may be greater in the case of unstructured incentives, but it can happen in the general sense anytime an employee outperforms his peers and gets financially rewarded for doing so. The practice risks leading to employee dissent and dissatisfaction which is not something that any manager wants.

Overall, salary incentives can be effective ways of motivating employees. They create a sense of positive reinforcement of good performance as well as - employee loyalty, reciprocity and appreciation. Managers should take care, however, to use them fairly and wisely so that they do not result in employee contentiousness and dissent.

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