Incentive wage plan definition
/What is an Incentive Wage Plan?
An incentive wage plan offers an increased level of compensation when employee performance exceeds a threshold level. These plans are intended to incentivize employees to become more efficient and effective in completing their designated tasks. A plan could involve either an increase in output or a reduction in expenses. The best incentive wage plans are designed to benefit both the employer and the employee in equal measure.
Advantages of an Incentive Wage Plan
An incentive plan can be quite effective for improving company performance, but only if incentives are set at a level that employees consider to be achievable. When this is not the case, employees will likely ignore them and continue with their normal activities without making any changes.
Examples of Incentive Wage Plans
There are several types of incentive wage plans. One option is to pay employees a cash bonus if certain objectives are achieved. Another option is to issue stock options that generate a return only if the company’s share price increases - which creates an incentive for employees to increase overall company value. A third option is to enact a profit-sharing plan, where employees are paid a portion of an entity’s profits above a certain baseline level. So, if their actions increase company profits, they share in the outcome.