Payment Incentives, Their Importance, and Effects of Not Paying Incentives

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Pay incentive is a motivational feature that could be awarded in both monetary and non-monetary form and is used for the purposes of encouraging staff and employees to achieve the targets set in the workplace. As the business environment becomes more and more competitive, higher goals are being set for employees to meet and this creates the need for managers to come up with better and more fulfilling ways of encouraging the employees to meet the set targets. Human resource managers are constantly asking themselves what they will get by compensating employees for their performance. Payment incentives to employees come in many forms such as stock options, bonuses, extra training, performance shares, etc.

Negative effects of not paying incentives

Employees are bound to operate at a lower level without some form of incentive. This comes back to hit the company’s bottom line. In his study, (1998, p. 28 ) Hall concludes that lack of incentives to employees creates disharmony within the workplace, as employees tend to perceive that it is only management who are benefiting from their sweat. These perceptions lead to lack of teamwork. A company that does not invest in an incentive program suffers from frequent staff exits as the employees are always seeking for a greener pasture where they feel their efforts are being rewarded. Innovation also lacks in such an environment as the employees work for monetary value and is not driven by the desire to work and achieve both personal and organizational growth. Organizations that do not have an incentive program thrive on penalizing workers who haven’t achieved their targets; this in turn creates a culture of hate and discordance towards authority in the workplace. This culture becomes retrogressive towards the achievement of targets set forth by the company.

Positive effects of not paying incentives

Just as there are pros of pay incentives, there are also some disadvantages of those. Companies that award employees through a pay incentive scheme are also at risk from the employees acting in questionable ways in order to be awarded more in terms of bonuses and other pay incentives. A good example of this is how the recent global recession was contributed by the risky behavior of financial services employees and fund managers in their quest to earn more bonuses from their companies. This was after surpassing the organization’s targets. In their work, Jensen and Murphy (1990, p. 230) state that if not properly implemented, a pay incentive program could be costly to the company, if the employees are able to achieve the set targets without any fuss. This necessitates the company to raise targets and in the end this only serves to kill the morale of the employees who will feel that they are being punished for achieving their targets.

Negative and positive effects compared

A company achieves more by rewarding its employees as it is able to retain the trained and qualified staff. Also the morale and team spirit of the employees is further enhanced as they feel that their work is being appreciated as they are contributing towards the bigger success of the company.

Importance of pay incentives

Incentives can only be awarded after performance evaluations have been conducted and this gives the company the opportunity to evaluate and mitigate any chances of a lazy employee “hiding behind others.” A performance evaluation hence boosts an output of each and every worker in the firm. In a big company, small time employees are not able to appreciate their output towards the bigger goal of the company, hence companies that have an incentive program in place are able to appreciate them and this maximizes the potential of each and every employee which in turn makes the company achieve its goals faster. In his book, Smith (2004, p. 240) states that an organization that is able to demonstrate to its employees that their efforts effect the bottom line of the company is sure to reap more, as the staff will feel motivated when the company succeeds. As the saying goes, “a chain is only as strong as its weakest link.” When an employee is happy in the organization, the chain effect of this morale can be felt all around the company through better results.


In a small firm, pay incentive can be a great tool that can be used by management to motivate employees. It is easier to implement incentive programs that are normally problematic in bigger firms. Overall pay incentives result in a better response from the employees in terms of achievement of their targets.

Reference List

Jensen, Michael C., & Murphy, Kevin J., 1990. Performance Pay and Top- Management Incentives. Journal of Political Economy, 98 (2), pp. 225-64.

Hall, B., 1998. The pay to performance incentives of executive stock options. Washington: National Bureau of Economic Research.

Smith, A., 2004. The HR answer book: an indispensable guide for managers and human resources professionals. New York: AMACOM Div American Mgmt Assn.

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