Driving Performance with Incentive Pay

Driving Performance with Incentive Pay. Katelynn Robinson.

Does incentive pay work?. The data shows it does: 96% of companies are using incentive-based pay to motivate an increase in performance Incentive budgets are increasing Companies are investing more in incentive pay because they are receiving a return on investment.

Benefits of using incentives. Rewards current performance without obligation of such rewards continuously More economical to balance salary and incentives during a recession Can increase organizational collaboration Can increase achievement of company goals.

Potential issues and their resolutions. May motivate dishonesty Entitlement may emerge Can negatively impact job satisfaction Reward past or current performance instead of future performance Short term incentives.

How can companies afford incentives?. Incentives are tied to performance- increased performance is increased revenue The key is smaller bonuses: More affordable- range from a few hundred to a few thousand dollars Can be give more frequently Benefits outweigh the costs Improves employee satisfaction through frequency and variety.

Common Types of Incentive-Based Pay. Long Term Incentives : Stock options (public companies) Long-term cash plans (private companies) Short Term Incentives : Annual Incentive Plan- rewards specific tiered results Discretionary Bonus Plan- management decides if this is awarded and how much (no guarantee) Spot Awards- paid as soon as tasks are accomplished Profit-sharing Plan- a predetermined formula where employees share in the organization's profits Team/Small Group Incentives- focuses on the performance of a group Retention Bonus- reward offered outside of salary to retain a key person Project Bonus- paid to employee or department for completing a project within a certain time frame.

Which is the best type of incentive?. The best incentive is the one that works for your company. Short term incentives are more popular and do seem to work better Short term incentives are found to be more motivational and less complicated.

Keys to designing an incentive plan. The plan must:.

Incentive Plan Steps. Survey employees to find the most motivating incentives Create a plan that has a set time frame and requirements for each reward Announce and implement the compensation plan Survey employees to find out satisfaction with the compensation Review numbers to see if the plan is increasing performance Revise as necessary.

Reasons to review and revise an incentive plan. Performance is not increasing Motivation is not increasing A recession makes goals unrealistic Any other issue occurs.

Important to Note. Incentive plans are not one size fits all. A company will likely need multiple incentive plans at one time because different positions often need different goals and rewards. An executive will want different rewards than a customer service employee Different departments will have different goals.

In Conclusion:. Incentive based pay does work Short term incentive plans work the best Incentive plans should be challenging yet attainable You will likely need multiple different incentive plans at once.