In spite of the advantages, the incentive plans are not free from disadvantages. The following are some of the important advantages of using incentive compensation plan.
1. Benefit to consumers – reduction of cost of production per unit is passed on to the consumers by reducing the selling price.
2. Reduction of idle time – since the payment of wages is linked with efficiency, the idle time costs are reduced to the minimum.
3. Reduction of labor turnover – workers is rewarded properly for their efficiency which results in reduction of labor turnover.
4. Reduction of cost of production per unit – cost of production per unit of output declines due to decrease in labor cost and overheads per unit.
5. Increase in volume of output – output of the firm increases as the workers are motivated to increase their efficiency to get more wages.