A reward can be anything that attracts an employee’s attention and stimulate him to work. An incentive scheme is a plan to motivate individual or group performance.
The effective use of incentives depends on three variables:
1) The individual
Employees view rewards differently because of age, marital status, economic need etc.
The work situation is made up of four elements such as work system/technology, satisfying job assignment, feedback system, and equity.
3) Incentive plan
Rewards are classified into two types
1) Direct compensation: It includes wages, overtime work., bonuses based on performance, profit sharing, and opportunities to purchase stock options.
2) Indirect compensation: It includes insurance plans pensions etc.
Objectives of the reward system
1) To improve the profit through a reduction in the unit costs of labor and materials.
2) To increase productivity.
3) To avoid or minimize additional capital investments for expansion of production.