How To Develop An Incentive Compensation Plan To Motivate Employees

A well designed incentive compensation program can align employee motivations with company aspirations. Some companies have a good working environment and strong personal relationships to keep their employees performing well. Sometimes, employees need more than personal development help and “soft” factors to perform great work. In these situations, human resource professionals can introduce incentivize compensation plans for employees. In these programs, employees receive various types of compensation for positive behaviors. Typically, businesses can link incentives to sales, performance or other metrics. To learn more about incentive compensation plans, we will show you how to develop a program that works.

Eligibility For Incentivized Compensation

Human resources must first determine who is eligible for the incentivize compensation program. You must design a compensation program that follows the laws and does not discriminate against employees with disabilities. In many cases, HR professionals should consult with a business attorney to mitigate any potential liabilities. Generally, incentives should be available to all employees equally. However, you may choose to apply a specific program to employees in a certain department or role. For example, a sales team might have a different compensation plan than the production department. Moreover, the executive suite may receive incentives that are much more lucrative than sales. In any incentivized compensation planning process, clearly define who is eligible for the program.

Set Clear Benchmarks For Performance

The best incentivized compensation plans have clearly defined benchmarks of performance. When employees understand their expectations, they can meet or exceed them. In order to provide incentivized compensation, both managers and employees should under the benchmarks required to receive additional compensation. Depending on the role, the employee may have a sales or production quota to meet. This would become the benchmark. Then, whatever targets they achieve beyond that would contribute to additional compensation. By defining benchmarks clearly, performance can be tied to specific actions or measurements.

Incentivize Positive Behaviors

When designing a compensation plan, the incentives should reinforce positive behaviors. Employees should understand that the incentives are for strong performance that achieves company objectives. The incentives should be designed so that manufacturing one product over another benefits an employee more. Rather, the overall production of what makes the company most profitable should be prioritized highest. This can only be done by incentivizing behaviors that contribute to the company’s bottom line. Thus, remember to balance out the incentive plan to ensure that employees are rewarded for positive behaviors that support the company’s mission.

Structure The Incentive Compensation Payments

There are many ways to reward employee incentive programs. Depending on the measurements used to benchmark performance and align behaviors, various types of incentive compensation could fit your company structure. For example, public companies may offer an annual bonus in the form of stock options. This structure allows the business to reduce fix expenses and still compensate employees in good years. Meanwhile, small business incentives might get paid out on a quarterly basis in the form of profit sharing. Other ideas include the use of cash bonuses, raises and financial prizes. Make your incentive compensation plan customized to your company. It should fit well with the company core values and culture to further motivate employees.

Create Funding For The Incentive Program

Of course, HR should work with management to decide how to fund employee incentives. The compensation plan should have a detailed approach to how much the program costs and where the funding will come from. Companies can allocate a set percentage of profits to their incentivized compensation plans. If you take an ROI-based approach to compensation planning, it could be easier to secure the required funding. After all, when employees perform better, the company will earn more profits which can justify the additional costs. Planning a detailed budget is an essential component to a successful incentivized compensation plan.

You can develop an incentive compensation plan that unlocks growth and profits for your company. Start out by creating eligibility requirements, defining benchmarks and identifying positive behaviors to reinforce. Then, decide the type of incentives and compensations that fit with the overall business strategy. Make sure you have the funding required to implement the plan. With a well designed incentivized compensation plan, employees will perform better and achieve business goals.

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