Incentive Plans - Research Paper Example

Salary incentive plans are best suitable when organizations need to exercise greater control over the sales force in order to achieve organizational goals including the development of new market segments, excellence in customer services, and delivery of other support functions. In case of team selling activities, this incentive plan is more appropriate because it is very difficult for the management to identify individuals whose effort contributed to the sale. In addition, the method can be used in any situation where a flawless employee performance evaluation is not possible.

From the perspective of a salesperson, the salary incentive plan is more secure because incentive rate does not change according to the sales volume fluctuation. In the words of Reinfeld (1996), employees who are working in the service sector are non-aggressive and they need a stable environment to perform their tasks effectively. From an employer perspective, this incentive plan is helpful for the organization to operate its business activities more efficiently as employees are not forced to increase the sales volume under this plan.

Advantages As Reinfeld (1996) points out, high level of management control over the sales force is the most potential advantage of salary incentive plans; and this incentive plan can assure salespeople a steady and secure income. As the salary incentive is at a fixed rate, it is easy for the management to monitor and control its budgeting activities effectively. Another benefit of this plan is that it is very easy to understand. Equal treatment of employees assists the organization to avoid employee conflicts to a great extent.

Under this plan, the company incurs relatively fixed sales costs, and this situation reduces the level of future uncertainty as well. Disadvantages Many companies claim that this plan would not improve employee productivity significantly as employees are paid regardless of the sales volume. The most notable demerit of this incentive plan is that unproductive employees are paid for the effort of other productive employees. In other words, efficient and hardworking employees are not sufficiently paid for their extra effort.

Under this incentive system, firms are often forced to exercise close supervision over their sales force. According to Reinfeld (1996), the salary incentive plan does not provide any incentive for a balanced sales mix. Commission plans Under the commission incentive system, payments are made on the basis of actual employee performance or sales volume. Since an employee’s productivity level rests with his/her own skills and efficiencies, this plan offers an unlimited incentive to employees.

To be more specific, commission plans assist employees to determine their income level. Commission rates are determined by the organization. The commission plan is more appropriate when sales are promoted by individuals rather than the team effort. If the organization practices aggressive competition strategies, commission incentive plans would be more suitable. Advantages According to Zenger and Marshall (1995), the most notable benefit of commission plans is that payment is directly linked to employee performance under this system.

Commission incentive plans are very easy to be administered and commission rates can be easily computed. It provides employees with an opportunity to increase their earnings based on their performance.