Advantages and Disadvantages of Incentive Schemes

By: J.A.J Aaronson - Updated: 24 Apr 2018 | *Discuss

 

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Incentive schemes are one of the most popular and potentially effective forms of benefits available for employees, particularly those involved in the sales process. These schemes reward those who meet or exceed their targets, and provide a financial or non-financial incentive to encourage high productivity. However, while there are numerous benefits and advantages associated with these schemes, there are also significant disadvantages that must be considered.

Advantages

Many of the advantages associated with introducing incentive schemes as benefits for sales employees are self-explanatory. In the first instance, once employees are drawing a salary there is frequently little reason for these individuals to work as hard as they could. While sales employees would expect to lose their jobs if they repeatedly failed to meet their targets, many employees coast through, fulfilling the minimum requirements but failing to meet their true potential. However, introducing an incentive scheme can encourage talented but unmotivated individuals to increase their productivity and therefore increase he level of sales being produced for your company. Incentive schemes may work on a commission basis, whereby employees are paid a proportion of the value of each sale that they complete, or they may operate on a fixed rate basis, with employees being remunerated in some way, over and above their salary, in the event that they perform particularly well. As such, perhaps the most significant advantage is the potential for greater turnover.

Incentive schemes can also help to create a climate of healthy competition within your sales force. If you limit the number of employees who will receive remuneration through your incentive scheme you can help to encourage competition amongst your staff, which in turn creates a self-perpetuating increase in results.

Disadvantages

There are, however, a number of disadvantages associated with these schemes. Primary amongst these is the potential for rifts between employees. If some feel that they are being unfairly treated, this can actually have a negative effect on the productivity of those individuals. Regardless of the increase in sales achieved by those who are receiving the advantage of the scheme, this sense of iniquity can reduce the productivity of the lower band of sales people to the extent that you may ultimately see a net loss in sales.

Furthermore, if these schemes are not implemented in a fair and thoughtful way, employees may feel that they are being taken advantage of. For example, you should think very carefully if you are considering replacing part of your salary offering with an incentive scheme; employees who don't perform sufficiently well may feel as if they are taking a pay cut if you introduce this sort of arrangement, and their may be employment contract issues to consider.

In order to take full advantage of the potential benefits of incentive schemes, and to help ensure that you avoid the potential disadvantages, you should give careful thought to the specific stipulations of the scheme. As such, you may wish to read the article offering advice on implementing such a scheme, which is available elsewhere on this site.

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