Incentives
Table of Contents
Incentives are additional forms of reward that employees receive upon attaining certain targets. Incentives can take any form apart from regular wages, including monetary forms such as bonuses and non-monetary forms like recognition or gift cards.
In Human Resources and payroll, incentives are given in order to induce a specific behavior or performance. For instance, in case of a sales worker, an incentive can be given to meet the set revenue target in a month. In case of a manufacturing process, an incentive is given for attaining the production targets.
Types of employee incentives
Incentives can be structured in different ways depending on the role, industry, and business objective. Some are individual-based, while others are linked to team or company performance.
Common examples include:
- Sales incentives or commissions
- Performance bonuses
- Attendance incentives
- Production-linked incentives
- Referral incentives
- Retention incentives
- Festival or ex-gratia payments
- Team-based rewards
- Spot awards or recognition payouts
Incentives must possess a rule that is clear-cut. It must be known to employees what goal must be achieved, how the incentives will be computed, when the pay-out date is, and if there are any conditions.
Incentives vs bonus
Incentives and bonuses are often used together, but they are not always the same.
Incentives are generally associated with a target or performance criterion or with some other business-related goal. Bonuses can be either statutory, discretionary, profit related, or policy driven. Statutory bonuses in India are covered under the Payment of Bonus Act, 1965, which lays down the provisions for giving bonuses to qualified employees in some specified establishments depending on profit, production, or productivity.
The difference is relevant to payrollers since each of the incentives or bonus elements will have its own set of guidelines pertaining to eligibility, taxation, payment periods, and accounting.
Why incentive management needs control
An incentive may inspire the employee, but it may also lead to disagreements due to the ambiguity of the system. This occurs if the goals were never stated, approval was slow, calculations were manual, or the employee is unaware of the reason for reduced or withheld pay.
For payroll departments, the calculation of incentive payments must be based on precise data from management, sales, attendance, production, or other performance-related sources. If such data is spread out between emails and spreadsheet files, it will create difficulties in month-end processing.
It is here where incentive management becomes related to Payroll Management processes, through defined approval criteria and correct data input.
Key takeaway
An incentive is useful for organizations to recognize performance, productivity, attendance, retention, or business results. To the HR and payroll department, the importance of the incentive is related to the criteria and calculations involved, which must be clearly communicated. Proper handling of incentives will lead to positive employee motivation without confusion about payment.
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