Incentive pay programs create an operating environment that values a shared commitment through the belief that every individual contributes to organizational success. The Managing Human Resource text explains that incentive pay programs emphasize a shared focus on organization objectives by getting their employees to work towards a common goal. The second reason for implementing an incentive pay program relates to individual contribution to organizational success. It is believed that with incentive pay programs, employees begin to believe they have shared ownership. According to the Managing Human Resources textbook, by Sherman, Bohlander, and Snell, many advantages can be noted for using an incentive program.
Incentives provide real motivation that produces important employee and organizational gains.
Incentive payouts are variable costs linked to achievement. Base salaries are fixed costs unrelated to output. Incentive compensation is directly related to operating performance. Incentives foster teamwork, when payouts are based on team results. Incentives distribute success among those responsible for producing the success.