Meaning of Incentive Wage System
The Incentive Wage System is a combination of work-based and time-based payment systems. Under this system, if a worker produces more than the predetermined output, he earns an extra bonus as an incentive for higher production. The work-based and time-based wage payment systems have their own drawbacks, e.g., the time-based wage payment system treats both the efficient and less efficient workers with equal wages, which does not encourage the efficient workers to increase their productivity. Similarly, in the piece wage payment system, the workers are more concerned with the quantity of output, neglecting the quality aspect. To overcome the above drawbacks and to motivate the workers in their work, the Incentive Wage System was introduced.
Incentive wages can be provided in two forms:
- Monetary Incentives
- Non-Monetary Incentives.
Monetary incentives refer to those payments which are in the form of cash, allowed to the workers for the production of additional units, which motivates them to maximise their production limits. On the other hand, non-monetary incentives are in the form of material gains, other than cash payment which acts as a psychological boost to the workers, e.g., stability in employment, participation in management, appreciation or honour to the workers etc. The system in which both monetary and non-monetary incentives are provided is called Incentive Wage System.