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Incentive
In general, incentives are anything that persuade a person to alter their behaviour. It is emphasised that incentives matter by the basic law of economists and the laws of behaviour, which state that higher incentives amount to greater levels of effort and therefore, higher levels of performance. Divisions Incentives can be broken down into two categories; intrinsic incentives and extrinsic incentives. The motivation of people's behaviour comes from within. In activities, they are often motivated by the task itself or the internal reward rather than the external reward. There are many internal rewards, for example, participating in activities can satisfy people's sense of achievement and bring them positive emotions. An intrinsic incentive is when a person is motivated to act in a certain way for their own personal satisfaction. This means that when a person is intrinsically incentivised, they perform a certain task to please themselves and are not seeking any external reward, nor ...
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Incentive Program
An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees and in sales to attract and retain customers. Scientific literature also refers to this concept as pay for performance. Types Employee Employee incentive programs are programs used to increase overall employee performance. While employees tend to approve of incentive programs, only 27% of companies have such programs in place. Employee programs are often used to reduce turnover, boost morale and loyalty, improve employee wellness and safety, increase retention, and drive daily employee performance. Consumer Consumer incentive programs are programs targeting the customers of an organization. Increases in a company's customer retention rate as low as 5% tend to increase profits by 25%-125%. Consumer programs are becoming more widely ...
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Personnel Economics
Personnel economics has been defined as "the application of economic and mathematical approaches and econometric and statistical methods to traditional questions in human resources management". It is an area of applied micro labor economics, but there are a few key distinctions. One distinction, not always clearcut, is that studies in personnel economics deal with the personnel management ''within'' firms, and thus internal labor markets, while those in labor economics deal with labor markets as such, whether external or internal. In addition, personnel economics deals with issues related to both managerial-supervisory and non-supervisory workers. The subject has been described as significant and different from sociological and psychological approaches to the study of organizational behavior and human resource management in various ways. It analyzes labor use, which accounts for the largest part of production costs for most firms, by formulation of relatively simple but generaliza ...
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Incentive-centered Design
Incentive-centered design (ICD) is the science of designing a system or institution according to the alignment of individual and user incentives with the goals of the system. Using incentive-centered design, system designers can observe systematic and predictable tendencies in users in response to motivators to provide or manage incentives to induce a greater amount and more valuable participation. ICD is often considered when designing a system to induce desirable behaviors from users, such as participation and cooperation. It draws from principles in various areas such as economics, psychology, sociology, design, and engineering. ICD has been gaining attention in research communities due to the role it can play in helping systems benefit their users and ultimately achieve better results. History In 1996, the Nobel Prize in Economics was awarded to William Vickrey and James Mirrlees for their work in "The economic theory of incentives under asymmetric information", which was ...
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Principal–agent Problem
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the " principal"). The problem worsens when there is a greater discrepancy of interests and information between the principal and agent, as well as when the principal lacks the means to punish the agent. The deviation from the principal's interest by the agent is called " agency costs".''Pay Without Performance'', Lucian Bebchuk and Jesse Fried, Harvard University Press 2004preface and introduction Common examples of this relationship include corporate management (agent) and shareholders (principal), elected officials (agent) and citizens (principal), or brokers (agent) and markets (buyers and sellers, principals). In all these cases, the principal has to be concerned with whether the agent is acting in the best interest of the principal. The concepts of moral hazard and conflict of interest re ...
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Motivation
Motivation is the reason for which humans and other animals initiate, continue, or terminate a behavior at a given time. Motivational states are commonly understood as forces acting within the agent that create a disposition to engage in goal-directed behavior. It is often held that different mental states compete with each other and that only the strongest state determines behavior. This means that we can be motivated to do something without actually doing it. The paradigmatic mental state providing motivation is desire. But various other states, such as beliefs about what one ought to do or intentions, may also provide motivation. Motivation is derived from the word 'motive', which denotes a person's needs, desires, wants, or urges. It is the process of motivating individuals to take action in order to achieve a goal. The psychological elements fueling people's behavior in the context of job goals might include a desire for money. Various competing theories have been proposed co ...
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Organ Donation
Organ donation is the process when a person allows an organ of their own to be removed and transplanted to another person, legally, either by consent while the donor is alive or dead with the assent of the next of kin. Donation may be for research or, more commonly, healthy transplantable organs and tissues may be donated to be transplanted into another person. Common transplantations include kidneys, heart, liver, pancreas, intestines, lungs, bones, bone marrow, skin, and corneas. Some organs and tissues can be donated by living donors, such as a kidney or part of the liver, part of the pancreas, part of the lungs or part of the intestines, but most donations occur after the donor has died. In 2019, Spain had the highest donor rate in the world at 46.91 per million people, followed by the US (36.88 per million), Croatia (34.63 per million), Portugal (33.8 per million), and France (33.25 per million). As of February 2, 2019, there were 120,000 people waiting for life-savin ...
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Investment Incentive
Investment incentive is a government-implemented incentive policy aimed to encourage investors into its domestic market or to promote expansion of existing businesses. Investment incentives encompass creating an environment that enables foreign businesses to operate profitably and decreases risks. They are widely used by developing countries to attract investments. The incentives take form of "direct subsidies (investment grants) or corporate income tax credits (investment credit) that compensates the investors for their capital costs". Scholars generally consider economic development incentives to be inefficient, economically costly, and distortionary. See also * Foreign direct investment * List of countries by FDI abroad * List of countries by received FDI * Investment promotion agency An investment promotion agency (IPA) is most often a government agency (or occasionally a non-profit organization functioning similar to a chamber of commerce or business consulting corporation) wh ...
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Incentivisation
Incentivisation (British spelling) or incentivization (American spelling) is the practice of building incentives into an arrangement or system in order to motivate the actors within it. It is based on the idea that individuals within such systems can perform better not only when they are coerced but also when they are given rewards. Concept Incentivisation aims to motivate rather than encourage enthusiasm so that individuals perform better. It is distinguished from a bribery system in the sense that it provides the "spark to motivate, stimulate, move, arouse, and encourage workers to strive for a personal best." As a result of this motivation, it is proposed that incentivisation can improve the efficiency of different systems. This is supported by the theory that individuals react in response to extrinsic motivators, in other words, rewards such as increased pay or avoiding punishment such as disciplinary action. This is different to intrinsic motivators, which are based on sel ...
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Tournament Theory
Tournament theory is the theory in personnel economics used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals. This theory was invented by economists Edward Lazear and Sherwin Rosen.Edward P. Lazear and Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," ''Journal of Political Economy'', 89(5), pp841-864 The theory has been applied to professional sports and to the practice of law. Tournament theory also was applied to writing - one writer may be fractionally better at writing than another (and therefore have a better book), but because people allocate small amounts of time to reading, the writer with the marginally better book will sell far more copies. Rank-Order Tournaments as Optimum Labour Contracts Lazear and Rosen proposed tournament theory in their 1981 paper Rank-Order Tournaments as Optimum Labor Contracts', looking at performance related pay. Unde ...
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Incentive Trust
In American estate planning parlance, an incentive trust is a trust designed to encourage or discourage certain behaviors by using distributions of trust income or principal as an incentive. A typical incentive trust might encourage a beneficiary to complete a degree, enter a profession, or abstain from harmful conduct such as substance abuse. The beneficiary might be paid a certain amount of money from the trust upon graduating from college, or the trust might pay a dollar of income from the trust for every dollar the beneficiary earns. Although incentive trusts have apparently become more common in the early 21st century, a 2007 survey found that less than one-third of wealthy Americans attach conditions to the distribution of their estateAccording to Joshua Tate, an assistant professor at Dedman School of Law, SMU Dedman School of Law, incentive trusts pose a problem of inflexibility: "because the settlor cannot foresee all potential eventualities or circumstances and take th ...
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Environmental Quality Incentives Program
The Environmental Quality Incentives Program (EQIP) is a United States government program designed to assist farmers in improving environmental quality, particularly water quality and soil conservation. Congress established the program in the 1996 farm bill to provide primarily cost-sharing assistance, but also technical and educational assistance, aimed at promoting production and environmental quality, and optimizing environmental benefits. The program replaced the Agricultural Conservation Program, the Water Quality Incentives Program, the Great Plains Conservation Program, and the Colorado River Basin Salinity Control Program. EQIP was reauthorized in the 2002 farm bill at $0.4 billion in mandatory spending in FY2002 and rising to $1.3 billion in FY2007. The funding each year is to be divided, with 60% targeted to environmental concerns associated with livestock production and the remainder to crop production. Producers enter into contracts of 1 to 10 years. Participants can r ...
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Performance-related Pay
Performance-related pay or pay for performance, not to be confused with performance-related pay rise, is a salary or wages paid system based on positioning the individual, or team, on their pay band according to how well they perform. Car salesmen or production line workers, for example, may be paid in this way, or through commission. Many employers use this standards-based system for evaluating employees and for setting salaries. Standards-based methods have been in ''de facto'' use for centuries among commission-based sales staff: they receive a higher salary for selling more, and low performers do not earn enough to make keeping the job worthwhile even if they manage to keep the job. In effect, the salary would be re-evaluated up, or down, periodically (usually annually) based on the performance of the individual or team. The reward is the salary: with an expectation to be high on the pay band for high performance and low on the band for low performance. In comparison, the per ...
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