Employee Incentive Plans are Effective Ways to Reward Performance

According to the Society for Human Resource Management (SHRM) Web site, “An employee incentive plan is considered to be one of the most meaningful compensation programs an employer can offer to its employees.”

I absolutely agree with this statement. I think employee incentive plans are a great motivational tool for employees and help contribute to the overall success of the organization. With these plans, employees are more likely to have buy-in and they’re definitely more willing to make a difference.

Employee incentive plans are the answer to the frequently asked question, “What’s in it for me?” I think when employees feel that they have a real, direct impact on their company’s bottom line, they’re more likely to stay loyal, which, in turn, helps the company’s overall retention.

Employee Incentive Plans Vs. Pay for Performance
Pay for performance is just like it sounds. It connects compensation to individual job or work performance. 

Employee incentive plans take that one step further and become a reward for going above and beyond the individual job or work performance. And there are so many different types of incentive plans that companies can have. Here are some ideas: 

• Non-Monetary—This definitely takes into account the recognition for a job well done, and is probably the most commonly used type of employee incentive plan because it doesn’t cost anything or it costs very little. Some non-monetary rewards could be giving employees extra days off, wearing jeans to work, etc.
  
  Non-monetary incentive plans are the easiest—and most affordable—kind of employee incentive plans to put in place.
  
  
• Profit-Sharing Plans—According to Wikipedia.org, profit-sharing “refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on a company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.” Some larger companies are able to afford to have company-wide profit-sharing plans. For this reason it can be more difficult to implement something like this in a smaller company.
  
  Also, this type of incentive plan doesn’t always necessarily link to employee performance. It’s a company-wide thing, so if the company profits, everybody profits.
  
  
• Goal-Sharing/Gains-Sharing Plans—These types of plans are based on the company meeting certain pre-determined goals. If the company meets a growth goal, then employees will, again, be able to share in the profits.
  
  
• Bonuses—These are monetary additions to an employees’ regular salaries and are based on the levels of responsibility or the employees’ positions. Bonuses can be given on-spot, monthly, quarterly or annually. Some examples of bonus incentives could be given for:
  
  —Reducing costs
  —Increasing sales
  —Completing safety initiatives
  —Improving quality or customer satisfaction
  —Increasing customer retention
   
• Individual Incentive Plans—These types of plans especially help with employee loyalty and commitment. They link individual employee performance directly to the incentive, so it really helps for a company to identify and reward the higher-performing employees.

In my next Insight, I will detail the steps a company can follow to put employee incentive plans in place.

Employee incentive plans are a great motivational tool for employees and help contribute to the overall success of the organization.