The wage plan should be highly incentive based. This means, it should encourage workers to take more initiative and interest in the work, produce more and also earn more. The wage plan which serves all these purposes is called incentive wage plan. Such an incentive (reward) plan is beneficial to both – employers and employees. ILO defines incentives as “payment by results”. Incentives can also be described as “incentive systems of payment.” According to Dale Yoder, “Incentive wages relate earnings to productivity and may use premiums, bonuses, or a variety of rates to compensate for superior performance” Piece rate system is the oldest incentive wage plan. In the incentive plans, there is stimulation to employees because of the linking of wages with the production given.

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