Pros & Cons of Incentive Bonus Plans

Written by richard morgan
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Pros & Cons of Incentive Bonus Plans
Cash bonuses might not be the best employee incentive. (Money Money Money image by jc from Fotolia.com)

One method of motivating employees in a company is to set up an incentive bonus plan. A goal is outlined for the employees participating. The incentive plan can work either individually or through group efforts. The bonus can be either financial or benefit-driven, such as giving extra time off for every 10 new customers brought in. Undertaking an incentive-driven bonus program can have drawbacks as well as advantages.

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Compensation

If your business sets up an incentive bonus program, one of the obvious disadvantages will be either a loss of revenue or a loss of production. For example, if you provide the person who sells the most tires a bonus of £65, you're going to lose that money from your profits. If the compensation is in giving days off, you'll lose that employee's services for the time period and since he is your top seller, anyone you have replacing him might not sell as well, costing you lost sales revenue.

Salary

If you want to attract good workers, you can use a salary bonus plan. For example, if you want to get the best sales team, you can set up an incentive plan where the top two sellers will get a 5 per cent raise. The advantage there is you may have your hardest workers competing to win an incentive bonus and in so doing, your sales might increase. The disadvantage, however, is those who don't win the bonus might be disappointed and morale may suffer.

Group

If you want to get groups involved in the incentive plan, some advantages and disadvantages will apply. One of the advantages will be having individuals work as a team, which means that an underperformer can be assisted by the others in the group. However, a disadvantage can come from problems in the group dynamics, as well as the chance that an underperformer might find himself targeted.

Problems

While bonus incentives might have a short term bump, the evidence to support lasting effects is lacking. Bonuses have drawbacks that can cause problems in the workplace. Some might say bonuses encourage competition to the point where employees might do whatever it takes to achieve their goal, rather than looking out for what is best for the company and their co-workers. At the same time, the workers who don't win the incentive bonuses might feel less important to the company.

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