The Effects of Incentive Plans towards Organizational Objectives

To begin with, an incentive plan is a way adopted by the management of an organization to encourage specific positive behavior among its employees.  This is done by rewarding them for good performance at their work place. In other words the incentive plans act as a pay back system to recognize an individual’s, group’s or organization’s high leveled performance. These plan enables the organizations to attain it’s objectives such as generate enough money to meet the organization’s daily needs, profit to the organization owners’ to maintain good quality life and good employees’ welfare like wages and safe working environment .For instance the use of excess-based profit incentives is a method adopted to maintain the profit levels required to motivate employees to perform highly at their work places. (Sim and Carey, 2003)

Therefore, incentives plan can affect the objectives of an organization positively or negatively. This will solely depend on what incentive plan has been adopted and the way of implementation on the same. For proper and perfect results a close research has to be carried on in relation to the activities entailed in a specific organization and strict implementation to the core of the incentive plans.

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In order for an incentive plan to be effective to an organization, it must determine what the best way to motivate the employees, and the positive and negative impact it has on the organization, it must also be tied to cost areas that employees have control over. For example the labor hours, materials costs, overtime, reworks and waste and scrap small tools and consumable supplies. This will then influence directly to the profits of the organization. (Sim and Carey, 2003)

To achieve the above, certain components should be put to play. To beginning with, the incentive plan should put to task the employees by coming up with programs that reinforce positively good performance and on the other hand reinforce negatively poor performance.

For instance, if the employees work better and produce quality work during overtime, the incentive paid to employees increases. If they work less and of poor quality is realized during over time, the incentive is decreased. If all employees are positively reinforced without punishing negative behavior, the best performing employees are bound to relent in their good work because their efforts towards the organization are not noticed. (Awasthi, Chow and Wu, 1998)

Secondly, the incentive plan should be directed to all the employees of the organization basing on their individual contribution to the overall success of the organization-the lesser the responsibilities, the lesser the reward and the greater the responsibility, the greater the reward .This should include the senior management staff, administrative personnel, supervisors, clerks and others. To illustrate this, a clerk in an organization cannot be rewarded the same as an administrative personnel in a given organization. A line has to be clearly drawn. If this factor is not adhered to, although the incentive plan is friendly to the organization, less motivation on the part of workers is bound to occur hence affecting the performance of the organization as a whole. (Sim and Carey, 2003)

Thirdly, incentives should be consistent .The time frame in which the rewards are given to employees should be specific in terms of time. For instance, quarterly or monthly .This will hence reduce the administrative burden to the organization and also motivating the employees as they are well assured of a reward at a specific time of the year. If there are inconsistencies in the allocation of the incentive, the employees will loose morale to work towards attaining the objectives of the organization thereby affecting the normal proceedings of the organization.

Also, the minimum gross profit of the organization should be defined before putting to place an incentive plan. This is important so as to maintain an organizational return on risk. The incentive allocated to the employees should be based on the gross profits in excess of this amount. This enables the organization to maintain stability as there will be an increase in profit as the excess profit is shared between the employees and the company .Failure to put into consideration the gross profits of the organization, due to allocation of incentives, the organizations financial stability will be affected hence running into loss or debts.

The bottom line is that incentives to the employees shows appreciation and creates a sense of participation in an organization. A well designed incentive plan helps to bring people to pull together towards the organization’s objectives because the organization system recognizes their efforts, helps to control the employees towards the direction you want them to go, and gives the extra push that every organization requires to meet the competitive nature in the market. In return, the employees will feel they have a sense of control over their income. Also, incentives bring to the employees a sense of responsibility and more ownership of the job due to appreciation of their efforts to meeting the organizational objectives. In addition, incentives encourage the employees to perform highly by working extra hard because they are rewards in the long run. Apart form that, they help in establishing more effective means of measuring performance among the employees thereby getting positive results in the organization. All these can only be realized if proper choice of the incentive is done and also implementation. (Awasthi, Chow and Wu, 1998)

On the other hand, incentive plans may weigh down an organization if unfriendly incentive plan to the organization is adopted and also poor implementation of the same. This can impact negatively to the organization. Therefore, incentive plans in an organization can either impact positively or negatively on the objectives of an organization.  (Awasthi, Chow and Wu, 1998)


Awasthi, Chow V and Wu A (1998) Performance measure and resource expenditure choices in a

Teamwork environment: Management Accounting Research: The effects of national


Sim K and Carey J (2003) Organizational control and work team empowerment: Advances in

Management Accounting; An empirical analysis


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The Effects of Incentive Plans towards Organizational Objectives. (2016, Oct 17). Retrieved from