Bonuses Necessary to Keep Most Valuable Employees

September 9, 2012

The U.S. Olympic Committee pays a $25,000 bonus to a gold medalist, $15,000 for silver and $10,000 for bronze. Professional sports contracts are laden with cash incentives. Best performers win Academy Awards and other recognition. America celebrates achievements.

In business, cash incentives are universal with executives and managers and close to universal in sales. In many jobs, tips are important. Profit-sharing plans, goal-sharing plans and piece-rate incentives are widely used.

Rewards influence employee behavior. The prospect of rewards — when effectively managed — triggers better performance. Yes, incentives can trigger undesirable consequences, but that’s poor planning. Enron is an obvious example. The problems in the financial community are attributable in part to poorly planned incentives. Corporate executives are sometimes rewarded for what appears to be poor performance.

But the evidence is solid — incentives can raise performance levels.

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