Performance Linked Incentive
A Performance Linked Incentive (PLI) is a form of payment from an employer to an employee, which is directly related to the performance output of an employee and which may be specified in an employment contract. PLI may either be open ended (does not have a fixed ceiling) or close ended (has an upper ceiling which is normally stipulated in the employment contract)
Open ended incentives are normally applicable revenue generating activities (e.g., Sales) and Close ended incentives are associated to support functions (e.g., Operation, Human Resources, Administration etc.)
However kindly note:
PLI vs salary
Salary is paid for the efforts that one puts in and PLI is paid for the results. Salary is paid in short, definitive cycles (e.g., weekly, monthly, fortnightly etc.) while PLI is paid in a longer cycle of monthly, quarterly or half-yearly, yearly.
PLI vs bonus
Bonus is paid for the performance of the organization while PLI is paid for the individual's performance. Bonus is normally paid yearly or half-yearly. This is normally paid as a percentage of one's salary, or as a fixed amount, irrespective of the employee's individual performance.
PLI vs retention bonus
Some organizations give a retention bonus which is payable for the period that an employee stays back in the organization. This is paid for the value added by the employee by virtue of mere presence and not necessary for the efforts or work output. Normally retention bonus is paid yearly or half-yearly which will incentivise the employee to stay back in the organization for the pa
PLI, by virtue of being sanctified in the employment contract, is paid for objective, measurable and visible results.
Management by objectives is the generally used to define the output which determines the payment of PLI. Since PLI is paid for the results and not merely for the efforts, the objects should be chosen to reflect those activities whose results are visible immediately after the effort.
Also, in calculating PLI, only the performance and not the potential of the employee should be considered. Potential of the employee is normally subjective and can be contested. PLI should be based on metrics which are absolutely objective and clearly perceived as fair by both employee and employer.
PLI is dictated by MBO
Management by Objectives (MBO) is a process of defining objectives within an organization so that management and employees agree to the objectives and understand what they need to do in the organization.
The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.
The system of management by objectives can be described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual's major areas of responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.
Some of the important features and advantages of MBO are:
Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment. This increases employee job satisfaction and commitment.
Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the organization and also to solve many problems.
Clarity of goals
Subordinates tend to have a higher commitment to objectives they set for themselves than those imposed on them by another person. Managers can ensure that objectives of the subordinates are linked to the organization's objectives
Open ended incentives are normally applicable revenue generating activities (e.g., Sales) and Close ended incentives are associated to support functions (e.g., Operation, Human Resources, Administration etc.)
However kindly note:
PLI vs salary
Salary is paid for the efforts that one puts in and PLI is paid for the results. Salary is paid in short, definitive cycles (e.g., weekly, monthly, fortnightly etc.) while PLI is paid in a longer cycle of monthly, quarterly or half-yearly, yearly.
PLI vs bonus
Bonus is paid for the performance of the organization while PLI is paid for the individual's performance. Bonus is normally paid yearly or half-yearly. This is normally paid as a percentage of one's salary, or as a fixed amount, irrespective of the employee's individual performance.
PLI vs retention bonus
Some organizations give a retention bonus which is payable for the period that an employee stays back in the organization. This is paid for the value added by the employee by virtue of mere presence and not necessary for the efforts or work output. Normally retention bonus is paid yearly or half-yearly which will incentivise the employee to stay back in the organization for the pa
PLI, by virtue of being sanctified in the employment contract, is paid for objective, measurable and visible results.
Management by objectives is the generally used to define the output which determines the payment of PLI. Since PLI is paid for the results and not merely for the efforts, the objects should be chosen to reflect those activities whose results are visible immediately after the effort.
Also, in calculating PLI, only the performance and not the potential of the employee should be considered. Potential of the employee is normally subjective and can be contested. PLI should be based on metrics which are absolutely objective and clearly perceived as fair by both employee and employer.
PLI is dictated by MBO
Management by Objectives (MBO) is a process of defining objectives within an organization so that management and employees agree to the objectives and understand what they need to do in the organization.
The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.
The system of management by objectives can be described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual's major areas of responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.
Some of the important features and advantages of MBO are:
Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment. This increases employee job satisfaction and commitment.
Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the organization and also to solve many problems.
Clarity of goals
Subordinates tend to have a higher commitment to objectives they set for themselves than those imposed on them by another person. Managers can ensure that objectives of the subordinates are linked to the organization's objectives