Remuneration and Incentives [Meaning, Difference and Essentials]

Remuneration and Incentives

Meaning, Difference and Essentials

Cost Accounting Notes B.Com CBCS Pattern

Remuneration Meaning

Remuneration is a payment or compensation received by an employee against the services provided by him. This includes the basic salary, any bonus, allowances or other economic benefits that an employee or executives received during his employment. Remuneration paid on the basis of time rate or piece rate basis. It is fixed in nature and is constant for every employee even if they doesn’t work as per standards. Remuneration is traditionally seen as the total income of an individual and may comprises a range of separate payments determined according to different rules.

Incentives Meaning

Incentive is a monetary or non-monetary reward which is given to a worker for his efficiency and hard work. It is given to the workers when their actual production is more than the standard production. It is considered as a performance appraisal to the employee if he/she performs better than standard work in a way that benefits to the organization. It is variable in natures and change according to the efficiency of the workers. An incentive motivates and encourages a worker to produce more and better and help in increasing the interest of the worker in the production.

Difference between Remuneration and Incentive

Both remuneration and incentive are labour cost. Sometimes, both the terms are used interchangeably but they are different from each other in following aspects:

Basis Remuneration Incentives
1. Nature Remuneration is fixed. Incentive is variable.
2. work Remuneration is given to labourers, employees for their presheculded task or routine task. incentive is provided when they perform good in their routine task.
3. Motivation It is routine payment. It does not motivate an employee. Incentive are ways to appreciate the employee’s performance.

Essntials of an Ideal Incentive Plan

An ideal incentive plan must possess the following features:

a) Simplicity – The plan should be simple to understand and operate. Who should be able to calculate their wages without any difficulty?

b) Acceptability – It should be acceptable to workers as well as the employer.

c) Flexibility – The incentive plan should be flexible to introduce nice changes.

d) Quality – The plan should ensure the quality of the output. Workers should be discouraged to speed up the work to earn more wages at the cost of quality.

e) Stability – The plan should give a stable earnings over a period of time, minimum but adequate wage must be ensured.

f) Wide coverage – It should cover the maximum number of workers. 1 direct as well as indirect worker should be covered.

g) No restriction on earnings – The plan should not have any restriction earnings of workers. They should be allowed to earn as much as they can.

h) Investigation and evaluation – The plan should be based on scientific investigation and evaluation to produce good result. Standard time should fix on the basis of time and motion study.

i) Increasing output and lowering cost of production – It should aim increasing output and lowering cost of production.

j) Motivating to earn more – The plan should motivate the workers increase their efficiency and earn more.

The success of an incentive plan depends on the mutual cooperation a understanding between employer and employees.

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