According to the National Commission on Labour, “Under our conditions, wage incentive is the cheapest, quickest, and surest means of increasing productivity”. The various merits of wage incentive schemes are:
1. Wage incentive schemes offer to workers the prospect of earning more thereby raising their standard of living.
2. Wage incentive schemes help in improving the industrial relations and discipline in the organisation.
3. Wage incentive schemes act as rewards for good performance. This encourages workers to come forward with new ideas and suggestions to improve productivity.
4. Wage incentive schemes are based on a standard of performance for the job. The standard is usually set after making a scientific work study. This brings about improvements in methods.
5. Wage incentive schemes are beneficial as they reduce the need for supervision and thereby reduce the cost of production.
6. Wage incentive schemes bring commonality of goals and targets between the management and workers.
7. This helps in developing a feeling of mutual co-operation between the management and the workers.
Despite the various merits of wage incentive schemes, several studies on the subject show that incentive schemes have a dubious value for increase in output.
The belief underlying wage incentive schemes is that an offer of additional money will motivate workers to work harder and more skillfully which will result in an increased rate of output but it has been found to be incorrect.
Even where an incentive scheme yields an increased output, it may generate tensions among the different parts of an organisation. The various demerits of wage incentive schemes are:
1. Some workers are more productive than the others. This helps them to earn more. When the earning capacity among workers differs, it results in jealousy among them.
2 Workers tend to sacrifice quality for the sake of quantity. This results in the production of sub-standard goods.
3. In order to produce more, workers will disregard safety regulations. This may result in injury to workers and breakdown of machinery.
4. Workers tend to overwork and these results in undermining their health.
5. Workers very often ask for compensation whenever production flow is disrupted due to fault of management.
6. Even where an incentive scheme yields an increased output, it may generate tensions among the different parts of an organisation.
7. Such tensions often create difficult managerial problems which may eventually affect output.