Last Updated 28 Jan 2021

Incentive Plans

Category Employment, Salary
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An incentive plan is a management’s tool that motivates employees to work efficiently and encourages behaviors that create successful results, benefiting the company and improve customer service. The plan makes employees understand that the success of the company relies on them, on their own success. It optimizes people and profit by recognizing workers’ loyalty and performance. Incentive plans boost employees’ productivity in achieving the goals of the company and are willing to go the extra mile to fight competition. Incentive plans fail when the structure is targeted too broadly and not focused on individual people or teams.

The typical profit sharing plan where it is "one for all and all for one" does not motivate anyone. (Schoeffler, 2005, par. 4). The plan should look at the needs, wants and goals of the employees and compare that to the needs and goals of the company. Not all employees though respond to the same award system, may find it unfair and may cause division among employees. One of the most important ingredients in designing an incentive plan is setting clear goals for employees. The goals need to be: Simple; Supported by valid information; Monitored by strong controls; and Quantifiable.

(Bates, 2006, par. 3). When designed correctly, the plan can stimulate employees to transform his ordinary routine into an outstanding performance. Ultimately, with better work output there is increase in profitability, revenues, enhanced business operations, and reduced turnovers. As a service company, United Parcel Service values its employees as its most valuable asset. With 407,000 workers worldwide, the company offers one of the most comprehensive compensation and incentive packages in order to build a highly motivated workforce in meeting its objectives by serving 7.9 million customers a day in over 200 countries.

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Recruiting and retaining effective employees dedicated to the mission and objectives of the company are essential to UPS’s daily operations. As the world’s largest global transportation company, UPS offers a variety of incentive plans that match the employees’ personal and family needs. Even part-time employees receive full benefits from medical/dental to tuition assistance. Through its Earns and Learn incentive, UPS provides training for its employees to attain their educational and career goals. Part-timers will have the chance to become executives.

The company already spent $47 million since 1999 in tuition assistance to over 30,000 student employees and $300 million a year in training programs for its employees. Besides the competitive salaries, the most important factors contributing to employee commitment and productivity at UPS are profit-sharing, stock ownership, and strong promotion from within the policy as well as recognition awards like Employee of the Month/Year, On-the-Spot Awards, and Length of Services. With these employees became more aware of UPS competitive position and since then showed a cooperative atmosphere by always doing their jobs to the best of their abilities.

In profit-sharing, UPS shares some of its profits with its employees. The compensation comes in stocks, bonds or cash that can be immediate or deferred until retirement. Stock ownership allows employees to buy stocks of the company. UPS was able to create a culture of ownership that motivated employees resulting to greater profits, sales and employment growth. Nothing could be more important for good corporate “governance” than getting managers and employees to think and act like owners by paying them like owners. (Stewart, 2002, Part 2, par.

1, line 7). Known as an employer of rewards, opportunity and achievement, UPS believes that long-term ownership is a vital contributor to its future success. The company has implemented a performance-driven incentive plan that retained its valuable assets and brought out the best of its employees in terms of productivity and customer satisfaction. As a result, Fortune magazine survey rated the UPS as America’s Most Admired Company in its industry for 19 consecutive years and the World’s Most Admired Company for four consecutive years.

Money magazine survey ranked the company 8th among the 200 with best benefits packages for two consecutive years. It also ranked in the Top Ten among all companies for excellence in quality management; quality of products and services; innovation; long-term investment value; financial soundness; ability to attract, develop and retain talent; responsibility to the community and environment; wise use of corporate assets; and global business acumen. Founded in 1907 as a messenger company, UPS grew to become the world’s largest package delivery corporation and a leading global provider of specialized transportation and logistics services.

Last year its revenue reached $42. 6 billion. In conclusion, therefore, incentive plans proved to be very effective in motivating employees in service organization like UPS. Based on my research, I am convinced that these plans play vital role in economic growth of most companies. After examining and evaluating the incentive plans of UPS, many employees have their standard of living improved; develop confidence in their work, and a positive outlook about the future knowing that they are financially secured and safe.

Valuing its workers, UPS has become today one of the most recognized and admired brand in the world. Servicing millions of customer everyday is quite frustrating, provoking, and annoying thus a need for motivational factor is needed. UPS realizes this and designed well-structured incentives for all its employees so that they could achieve success in their own right, feel good about themselves, and passionate about their work. It is important that companies keep their employees happy. Though expensive, cash incentives are the most effective motivational force in this industry.

Non-cash rewards are slowly becoming popular, giving employees a goal to work toward. Here at UPS, employees describe the company as an excellent place of work. The success of this company is because of these incentive plans that promote teamwork, motivated to work beyond expectations.


Stewart, G. Bennett III. (2002). How to Structure Incentive Plans that Work. EVAluation. Volume 4 • Issue 4 • Apil 2002. Retrieve July3, 2006, from http://www. sternstewart. com/content/evaluation/info/042002. pdf Schoeffler, Bill. (2005).

Employee Incentive Plans: Make Them Worthwhile. Insurance Journal. April 18, 2005 issue. Retrieve July 3, 2006, from http://www. insurancejournal. com/magazines/west/2005/04/18/features/54614. htm Bates, R. (2006). Designing Successful Incentive Plans Performance-driven incentive plans is your answer to assuring your company's goals while motivating employees. Associates Recruitment and Human Resources Consulting Services for the Sign Industry. Retrieve July 3, 2006, from http://www. signindustry. com/management/articles/2001-05-24-incentivesforemploy. php3#story

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