Advantages & Disadvantages of Individual Incentive Plans

by Lisa McQuerrey; Updated September 26, 2017

Incentive plans are used to encourage a particular behavior or performance standard for staffers through the use of monetary or other rewards. Individual plans may encourage top performers to excel, but they also have the potential disadvantage of intimidating and discouraging lower-performing staffers.

Encouraging Maximum Effort

If you’ve got a superstar performer for whom the sky is the limit, an individual incentive plan can encourage her to reach her maximum potential. This can be especially effective in the sales arena when a monetary incentive increases incrementally based on the individual’s performance. The staffer knows her income is dependent on her performance and that the more revenue she generates, the larger her paycheck will be. As a business owner, you get the advantage of only paying out bonuses when staffers excel.

Motivating Other Staffers

Individual incentive plans can create a sense of healthy competition within an organization, as employees push themselves to excel to keep pace with or surpass top-performing colleagues. There's no blame game with individualized incentive plans. Employeess succeed or fail based on their own merit, with staffers understanding that they are in control of their own earning potential.

Lack of Teamwork

An environment where it's every man for himself diminishes the propensity for teamwork and collaboration. Staffers may not want to support one another in incentive-related endeavors, for fear the colleague will get a leg up or get credit for another individual's work. This can create an uncomfortable or even high-stress work environment that leads to infighting and potentially low morale. The problem can become exacerbated if the incentive plan is accompanied by a feeling that leads or support are not fairly distributed among all staffers.

High Turnover Potential

Individual incentive plans often are utilized in commission-based learning structures. In other words, if you don't perform, your earnings are significantly diminished. An inability to generate a regular paycheck can discourage staffers and result in high turnover as employees leave to seek other jobs with more stable compensation structures. Turnover can be bad for business, as you incur the costs of advertising, recruiting, screening and retraining new hires.

About the Author

Lisa McQuerrey has been a business writer since 1987. In 1994, she launched a full-service marketing and communications firm. McQuerrey's work has garnered awards from the U.S. Small Business Administration, the International Association of Business Communicators and the Associated Press. She is also the author of several nonfiction trade publications, and, in 2012, had her first young-adult novel published by Glass Page Books.