How to Create Incentive Plans

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Employee incentives are a popular way to encourage employees to perform well at work. What “perform well” means to an employer depends on a few different factors, such as the type of workplace, the employee’s position within the company and the company’s overall business goals.

Sometimes, incentives are offered for employees who meet specific, measured goals, like sales figures or other numerical benchmarks. In other cases, they are offered for reaching less-tangible goals, like increasing sales figures by a specific percentage or remaining in good standing with industry regulators.

Determine Specific Company and Employee Goals

The first step in creating incentive plans for employees is determining the goals that employees have to reach to win incentives. Many employers offer incentives for multiple goals at once, giving employees the opportunity to receive more than one incentive for meeting multiple goals. Common goals for which companies award incentives include:

  • Meeting specific sales figures.
  • Reaching specific engagement figures on social media.
  • Serving a specific number of clients.
  • Remaining compliant with safety and regulatory laws.
  • Avoiding accidents and injuries.
  • Work attendance.
  • Successful campaign launches.
  • Improving individual sales rates.

Individual vs. Group Incentive Plans for Employees

The next step in creating an incentive plan is determining whether to offer an individual incentive or a group incentive. The right choice depends on the goal and the workplace environment. When the goal is for an employee to increase her sales figures by a specific percentage each quarter, offering an individual incentive seems like the logical choice.

However, if a salesperson can only increase her sales figures with support from other members of her team, then offering a group incentive is a better choice because it acknowledges the role each team member played in reaching the goal, including those in less-visible roles.

Potential Group Incentive Plan Examples

Incentives that can be given to groups of employees for meeting team goals include:

  • Cash bonuses.
  • Profit sharing.
  • Comp time.
  • Fun events during work time, like going to a sporting event or an amusement park instead of the office.
  • Stock shares.

Benefits of offering team incentives for a job well done include inspiring collaboration and teamwork, encouraging more experienced employees to mentor their less-experienced colleagues, fostering a sense of community among employees and driving employees to hold themselves and their team members accountable for workplace performance.

However, group incentives are not without their drawbacks. Drawbacks include creating an environment where employees blame each other for failure to meet goals, making high-achieving employees resentful of their lower-achieving colleagues and newer employees feeling pressured to meet goals beyond their capability levels.

Potential Individual Incentive Plan Examples

Many group incentives can also be offered to individual employees for reaching their goals. These include:

  • Comp time.
  • Cash bonuses.
  • Stock shares.
  • Profit sharing.

Other incentives are better suited for individual employees, like:

  • Career development opportunities.
  • Non-cash incentives like gift cards and items.

Unlike team incentive plans, individual incentives allow employees to achieve as much or as little as they are driven and able to achieve and be compensated based on this individual achievement. However, this can also create conditions that are not conducive to a healthy, thriving workplace environment. It can cause low-achieving employees to become demotivated, and on a larger scale, it can create a competitive environment where instead of helping each other succeed, employees undercut their colleagues and even rely on unethical actions and corner cutting to meet prescribed goals.

Seek Employee Feedback

An effective employee incentive plan can start with an incentive plan template for sales (or for safety, marketing or any other department or goal the company wants to measure and improve) but cannot just follow the template. Crafting an effective incentive plan requires input from the employees who will be working under the incentive plan.

An employer can start soliciting employee feedback by giving employees copies of the incentive plan template for sales and asking for their thoughts on the template. This can be done in a focus group setting or through individual communications between employees and their manager, like private emails, phone calls or surveys.

Customizing Incentive Plans for Employees

Another consideration the employer should make when crafting an incentive plan is whether the plan is ongoing or if it is offered once for meeting a specific goal. An ongoing incentive plan might be a cash bonus for the highest-performing salesperson each quarter, whereas a one-off incentive might be extra paid time off for a successful campaign launch. For some companies, the incentive plan that makes the most sense is a tiered plan, offering larger bonuses for reaching specific benchmarks. With this kind of system, an employer encourages employees at every level to work hard to reach goals.

Companies should avoid inadvertently offering higher-value incentives to certain employees and groups of employees for reaching the same goals. For example, a company might offer tickets to a local sporting event to male employees who meet a specific sales goal and offer gift cards to a cosmetics store to female employees who meet the same goal. This can create a sense of favoritism and even be deemed an act of discrimination.

Similarly, offering an incentive that certain employees are more likely to want than others, like electronics typically enjoyed by people in their 20s, can make employees outside the incentive’s demographic feel left out of the incentive plan and become less likely to try to meet the goals.

Other Employee Incentive Plan Examples

Employee incentive plans do not have to be complicated. Employers can take a look at other companies’ employee incentive plans to get ideas about what might and might not work for their own teams. A few examples of employee incentive plans are:

  • Offering a paid day off for every $100,000 in net sales a salesperson makes.
  • $500 for every successful employee referral.
  • Catered lunch at the end of each quarter to celebrate a perfect workplace safety record.

Writing an Incentive Plan

Once an employer has determined how to customize an incentive plan template for sales, safety, marketing, consumer engagement or any other type of goal to fit his team’s performance and needs, he can write out the plan. An incentive plan should include all of the following points:

  • The goal that must be met to earn the incentive.
  • What constitutes successfully reaching that goal

    this must be concrete, detailed and clear. The reward earned for reaching the goal. How the reward is disbursed to qualifying employees.

Employers should carefully price out each incentive’s monetary value for a few reasons. One is that if the incentives are perceived by employees to be worth significantly less than the effort they put in to earn them, the employees might not be motivated to work to earn them.

Another reason is that the incentive plan should fit the company’s budget. Offering incentives that put a company in debt or cut into profits is not sustainable, and at best, this means having to end an incentive program after only offering it once or a few times. At worst, it means failing to deliver the incentive to employees after they have earned it, which can create resentment among the employees and demotivate them from putting effort into their future work.

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About the Author

Lindsay Kramer has been a full-time writer since 2014. In that time, she's experienced the ups, downs and crazy twists life tends to take when you're launching, building and leading a small business. As a small business owner, her favorite aspect about writing in this field is helping other small business owners and aspiring entrepreneurs become more fluent in the terminology and concepts they face in this role. Previously, she's written on entrepreneurship for 99designs and covered business law topics for law firms.