Following are some of the important advantages of incentive plan:

(i) Increase in volume of output – Output of the firm increases as the workers are motivated to increase their efficiency to get more wages.

(ii) Reduction of cost of production per unit – Cost of production per unit of output declines due to decrease in labour cost and overheads per unit.

(iii) Reduction of labour turnover – Workers is rewarded properly for their efficiency which results in reduction of labour turnover.


(iv) Reduction of idle time – Since the payment of wages is linked with efficiency, the idle time costs are reduced to the minimum.

(v) Benefit to consumers – Reduction of cost of production per unit is passed on to the consumers by reducing the selling price.

Disadvantages of Incentive Plans :

In spite of the above advantages, the incentive plans are not free from disadvantages. The following are some of the important disadvantages:


(i) Difficulty to fix standard time – Fixation of standard time for implementation of incentive plans poses difficulty, particularly if the workers slow down deliberately while under observation to get set a higher standard time.

(ii) More supervision required – As the workers want to speed up the work to get more wages, more supervision is necessary to avoid decline in the quality of work and wastage of raw materials.

(iii) Union opposition – Labour unions may oppose the incentive plan because it weakens them and creates jealousies and greed among workers. This may lead to strikes and lock-outs.