Guidelines For An Employee Incentive Program

Someone actually told me a number of years ago that incentives are a sign of weak management. He’s long gone and for the most part so is his autocratic style of leadership.  Let’s face it, regardless of their generation, most folks in the workforce welcome the opportunity to earn more for working smarter.

I’ve sponsored the introduction of many incentive programs beyond the executive level.  The programs followed a few basic guidelines; any program must be easily measured, easily understood, reported and paid out frequently if earned, potentially weighted for both ‘local’ and enterprise-wide performance and managed in such a way as to not become an entitlement.

Easily measured and easily understood. Vivid in my experience is that if participants don’t understand how they can influence the outcome of an incentive program then it does not inspire continuous improvement and/or goal oriented behavior.  For example, a production workforce is more likely to be invested in a program that rewards the number of quality units produced per production hour worked in a safe environment than the cost of a unit produced.  The former is substantially within their control while the latter has mysterious elements—material cost, supervision, depreciation, overhead and more, much of which they cannot control.

Reported and paid out frequently. I’m writing about non-executive incentives here and emphasize that they must be kept front of mind if they are to be motivators. Publish results frequently, weekly if possible but no less than monthly. ‘Show me the money!’…pay out monthly but not less than quarterly.  Talk about the results individually, in groups and even during wage reviews.

Weighted for both ‘local’ and enterprise-wide performance. A good argument can be made that if the enterprise isn’t performing to plan, why then should individual elements of the enterprise be incented?  One answer, from the non-executive perspective is that ‘I’ can influence what I and my peers do but have little influence over the other aspects of the organization.   Optional but worth considering; design a hybrid plan which is based on departmental performance but scaled up if financial enterprise-wide goals are met.

‘Sized’ to the function being incented. The point is best made by asking ‘will your salesforce be inspired by the opportunity to earn a 10% bonus for exceeding a quota or goal?  More often than not the answer I get is ‘no!’  Different people, successful in different functions have different perspectives on compensation.  Design your incentive programs to be the best motivator for the individual elements within your organization, not as one size fits all.

Managed in such a way as to not become an entitlement. Here are some suggestions if you decide to roll out an incentive program.  First, test the plan using historical data.  Second, let the participants know that the first few months will be experimental…to ensure that the program works well for both them and the ‘house.’  Third, time your launch with a high probability that the program will ‘cash’ in the first period measured.  Doing so creates interest, energy and traction.  Lastly, be clear that the program will be reviewed at least annually and that the bar may be raised from time to time reflecting new, more efficient equipment, automation and enhanced customer offerings.  Keeping your program dynamic will deflect any thought that its rewards have become an entitlement.

Lessons learned!

Read more: How A Data-Driven Company Recruits And Trains In A Small Midwestern City