Effect of Incentives on Performance of Employees

Introduction

The topic of this research relates to every organization in the world. Incentives plan plays an important role to enhance the profitability of any organization. Performance is based on the effort of the employees and their motivation towards their work. The main thing that employees want, is the recognition for their skills and contributions, and get reward. And companies have tried to leverage this by offering performance-based incentives to their workers.

In a bid to attract and keep the best, employers give away cars, lavish vacations, stock options, and spot bonuses to motivate employees to perform better and stick around longer. When people get a reward outside their paycheck, they deliver better performance. Employee incentives, rewards, and recognition programs show your employees that employer value their contributions.

The use of incentives paid to workers whose production exceeds some predetermined standards, was first popularized by Frederick Taylor. He was very concerned about systematic soldiering which is the tendency of employees to work at slowest pace possible and to produce at minimum acceptable level.

He knew some people have energy to work more than their normal performance, and if he could find some way to utilize their energy, huge productivity gains would be achieved. He observed that a careful study was needed to define acceptable standards and incentives for achieving more than standards.

In this research, we narrow down our view, to see how incentives work in manufacturing industries, to enhance the performance of their employees. There are different types of operational incentives used to enhance the productivity of the organizations.

Objectives

The objectives of our study are:

• To measure the level of incentives.
• To measure the Performance of employees.
• To measure is there any effect of incentives on performance of employees.
• To see any other extraneous variable that also affects the relationship of these two.

Hypothesis

The hypothesis of this study is an follows:

"If the incentives are given to employees then they Show Better performance."

Review of Literature

In the past, businesses have been primarily concern with the distribution of good and services with the primary emphasis being on low cost and high profit margins. Employees have had little input regarding the operation of these organizations. Management thought that as long as employees were given a little incentive, the production and distribution of goods and services would be accomplished (Steers & Porter, 1975).

Occasionally, however management would solicit suggestion from employees regarding policies and procedures, and at same point it began to recognize that employee suggestions often proved to be beneficial to the organization. Managers in some organizations began to capitalized on this by given more incentives to there employees.

Overall it appears that incentives given to employees have proven to be beneficial both to employees and to the organization. Employees and managers are experiencing a new form of enhance communication. Employees have demonstrated a feeling of ownership of their work place and willingness to participate (Hardaker & Ward ,1987).

In this paper, we offer a new way to investigate the relationship between executive pay and performance, after a merger that allows us to dissociate the respective influence of shifts occurring both in compensation incentives and in team composition. The results of a real effort experiment conducted with managers within a large pharmaceutical company show that not only changes in compensation incentives affect performance but also that both managers’ past compensation schemes and company cultures matter for cooperation. The efficiency of a new compensation package is conditional on the reshuffling of teams and on the influence of the past of incentives within the new teams. (Claude Montmarquette, Jean-Louis Rullière,)

Theoretical Framework

The literature survey shows a relationship between the incentives being provided to the employees and the performance of the employees resulting as an increase in their level of satisfaction. The incentives given to the employees increase their motivation level and in the result they show better performance and thus it increases their level of satisfaction, profiting the organization on the whole.

Our theoretical framework consists of an integrated set of propositions that will help us in understanding the relationship between incentive plans and performance of employees. It includes concepts such as Incentives, Types of Operational Incentives, Performance, and Productivity.

Incentives:

Incentives are the financial rewards given to employees whose performance meet or exceed some predetermined standards.

Types of Operational incentives:

The incentives used to enhance the performance of operational employees are Piece work Plan, Standard hour Plan and Team or group Plans.

• Piece work plan is a system to pay an individual based on no. of items processed by him in a day.
• Standard hour plan is that through which a worker is paid a basic hourly rate and additional percentage if he exceed the standard output.
• Team or group incentive plans are designed for a set of specific groups, and are paid if exceed the standard productions.

Performance:

The performance of any employee, can be measured through various aspects like attendance, behavior, Willingness to work and most appropriate is the productivity.

Attendance:

The attendance of the employee shows his or her interest in the job and the level of responsibility he bears ultimately showing the job satisfaction he gains form his particular job.

Behavior:

The behavior of the employee with his or her colleagues and a general attitude is a representative of his peace of mind showing his job satisfaction and the happiness he experiences because of his job.

Willingness to work:

If an employee is willing to complete his job and put in some extra effort it shows his relationship with his work and his interest in the job which cannot incur until or unless he or she is satisfied with the job to at least some extent.

Productivity:

Productivity is the basic measure of performance of economies, industries and firms. Productivity is the output generated by an employee in a specific limit of time.

Significance of the Study

This is an important problem, faced by many organizations in this world. Managing human resources is a full subject and a full professional work. The Performance based incentives is one of the techniques to encourage the people working in organizations. This research helps all the manufacturing organizations, working in the boundaries of Pakistan and having the desi culture in them. This research provides the understanding of basic concept that how incentives encourage people to work hard and do better jobs.

Scope of the Study

This research benefited only the manufacturing industries in Pakistan. Because this study is only conducted in the production areas of the organizations. In this study, the effect of operational incentives is studied on the performance of workers. So that, we can understand how operational incentives enhance the productivity and performance of employees, and collectively increase the profitability of any manufacturing company. The population considered is the employees of manufacturing companies, working in Pakistan.

Research Procedure

The type of research which best suits for this case is Experimental research. Because, in this research, we are going to measure the relationship of two variables. So, the research design, Independent and dependent variables, treatment technique and Data collection and analysis are explained as follows:

Research Design:

Population:

As we are concerned about operational employees and how operational incentives enhance the performance of employees. So, population of our research consists of all of the organizations involved in manufacturing of products in Pakistan.

Sampling Frame:

The sampling frame being used is the list of the employees of the manufacturing firms in Pakistan. These organizations maintain a data base for the records of their employees.

Sampling procedure:

Probability sampling is being used for undertaking this study as the exact number of employees is known. The sampling procedure or technique being used is the Proportionate Stratified random sampling. As manufacturing firms are geographically distributed in main cities of Pakistan like Lahore, Karachi, Islamabad, Fasialabad, Multan and Gujranwala. So, we take these areas as Stratums and select organizations from each stratum according to their proportion. And then we randomly select employees from the selected firms and organizations. The random sampling has been undertaken by computerized programs.

Sample:

The sample is randomly selected from the organizations, selected from each stratum. Sample size will be a minimum of 350 employees. So, that we can generalize our findings to all of our population.

Independent variable:

Incentives given to employees are independent variable.

Dependent variable:

Performance of employees is dependent variable.

General or Model:

A general or model for stating the hypotheses for Experimental study is as follow:

Ss who gets X do better on Y than

Ss who do not get X (or get some other X)

Now applying the model on the above stated hypothesis is given below

S = the employees.

X = incentives given to employees, the independent variable (IV)

Y = Performance of employees, dependent variable (DV).

Alternate hypothesis:

There is no difference on Y between Ss who gets X & Ss who do not get X (or get some other X).

Measurement and Treatment technique:

As the type of this research is Experimental research, we use Solomon four group designs to check the affect of incentives on the performance of employees. First sample is selected as described in the sampling procedure. Then, sample is divided into four groups, two experimental and two control groups. After that, pretest is administered to one control and one experimental group. Then, incentives are provided to experimental groups and posttest is given to all of groups. And then affect of incentives on performance is measured through the difference of results of these groups.

Data Collection and Analysis:

The data is collected from the databases of companies, include in our sample. We can collect data from companies, about the performance of selected employees. And then applying the incentives with the help of management, the effect of treatment is also seen through posttest data, from company’s databases. We can check how their productivity and performance change after giving them incentives. The data is interpreted by using SPSS software and at the end findings cab be drawn from the results and we are able to determine whether our hypothesis is accepted or rejected.

Bibliography

• Booth,P. (1988): Employee Involvement & Corporate Performance.
• L.R Gay, P.L Diehl (1992): Research Methods for Business & Management.
• Steers,R, & Porter,L (1975): Motivation & Work Behavior.
• Fehr, E., Falk, A., 2002. Psychological Foundations of Incentives. European Economic Review 46, 687-724.