Question

What are the two basic requirements of an effective incentive pay plan? Please remember to explain your reasoning.

Answer 1

The two basic requirements of an effective incentive plan include employees should believe that accurate methods and procedures are used to rate employee performance, as well as incentives (rewards), must be based on performance. A perfect system of evaluating the employee’s performance should be created in the organization. The results of the evaluation should be made known to the employees at the earliest.The incentive plan should be beneficial to both the workers and the management. From the management's point of view, it should be cost-effective. From the workers' point of view, it should offer return, at a rate higher than the normal rate of wages, for the extra efforts made by them.