Incentive plans motivate employees to do exactly what they are incentivized to do. As owners and managers, you must decide what you want your employees to accomplish. If you task employees with multiple duties, keep in mind that people will usually focus more on the tasks they are incentivized to do. If you want your team to increase the amount of booked estimates, they will focus on that more than other tasks or goals.
According to DCR Strategies Inc., while “90% of business leaders believe that an engagement strategy could positively impact their business, only 25% of them actually have a strategy in place.” This is surprising since it is also reported that having a valuable, structured incentive program in place can increase employee performance by as much as 44%. What would that mean for your business?
Let me repeat what I noted earlier; it is reported that about $11 billion is lost each year due to employee turnover. Without good engagement and good company culture in the day-to-day workplace, there is a great chance that you will experience a high turnover rate. But having a good incentive plan in place can help. Companies that implemented an official, planned-out incentive or engagement program found a 64% greater increase in employee engagement than companies without this plan in place.
Considerations for Effective Employee Incentive Program
As you consider different types of employee incentive programs, it’s important to think it through and remove any unintended consequences. Here are a few to watch out for:
- Perverse Incentives: Avoid situations where strategies for earning a reward go against the benefits of employee incentive programs. An obvious example of this is when sales teams offer an inordinate amount of discounts to increase sales numbers and receive more rewards, but the overall performance of the organization is harmed.
- Unhealthy Competition: Your incentive program needs to preserve teamwork in your organization. Rewarding individuals instead of groups may lead to unhealthy behaviors, from passively withholding help to outright sabotage or cheating.
- Rewarding Luck: Earning a reward should be based on actions that are in the employee’s control. If employees feel that their efforts won’t be recognized or rewarded without luck or popularity, it can discourage them from trying.
- Ill-defined Goals: If the goals of your employee incentive programs aren’t tied to objective measurements, then it increases the risk of employees perceiving them as either arbitrary or proof of favoritism toward certain employees or departments.
Creating an Effective Employee Incentive Program
Sometimes incentivizing your team in one area is not enough; a hybrid incentive combines two or more goals for your team to meet. It incentivizes your team to concentrate on multiple areas and rewards a broader range of desired outcomes. Hybrid incentive plans allow your team to see the correlation between the goals that are set and met.
Once you have decided on an incentive plan that is right for your company, then you need to create a plan that works for your office. To do this, you will need to conduct a need analysis. This should reflect your current situation and be tied in with your goals. Once you have set your goals, the next step is to structure your incentive plan; the results should be measurable and objective.
Below are some questions to ask yourself. The answers you come up with will help you identify which incentive plan will work best for you.
- What does my team need to improve or work on?
- What do I want to accomplish this year?
- Are customers getting the experience they deserve?
- Does each prospect have a different experience when they call the office?
- How is team morale?
To implement an incentive plan, you need to clearly define the role of whom you are incentivizing. When creating an incentive plan, keep in mind the risks. The incentive plan you choose can and will change the behaviors of your team. A poor incentive plan will lower morale, create conflict, and ultimately encourage behavior that you don’t want. Your incentive plan should benefit the employee and benefit the office. It will also allow you to see who your top performers are and who may be a good fit for a deeper role in the company than they currently have.
Successfully Implementing an Effective Incentive Program
A good way to implement your incentive plan is to define its theme. Develop an exciting promotional campaign for the launch of your new employee incentive program just as you would for an actual product or campaign launch. You’ll want to capture the imagination of your employees. Explain your objectives and rewards for their success. Once employees are shown how they can make a difference, they’ll do it.
When implementing your incentive plan, communicate it often; the most successful companies make a big deal about their winners and awards. Make them feel special, and others will notice. Let participants or teams know their current standing in the incentive program.
Many companies prefer to test the plan on one department or division before rolling it out to the whole company. This allows times to make revisions and improvements. Be prepared to experiment with your incentive plan; you may not get it perfect on the first go around. Incentive plans, just like goals, should change over time as your needs change. As your team continues to advance, your incentive plans should develop as well. A well-designed system can be very positive, but a poorly designed system will do more harm than good. So if you are setting up your system, these five tips will be helpful:
Employees should control the outcome.
Ensure that the quality of the employee’s work will have a significant effect on the amount of incentive earned. The receptionist may not believe that his or her work will have an impact on the amount of profit the company makes. If that is the case, paying him or her, a bonus based on company profit will not incent performance. It’s OK to have a small portion of an employee’s bonus based on something they don’t directly control, but the preponderance of their incentive should be based on his or her performance.
Align the system with company objectives.
People will do what you pay them to do, so be careful to ensure that you incent the behavior you want. If you pay people for the number of widgets they produce, you are likely to get a lot of widgets. However, if a volume is all you pay for, the quality may not be what you need. Incentive systems must align closely with company objectives. We think it puts employees in an impossible position when doing something that will benefit the company reduces their compensation.
Bonuses have to be a good amount.
Studies show that for incentive pay systems to have a meaningful impact on performance, they have to represent at least 10 percent of an employee’s compensation. Less is generally too little to matter.
Incentives must be paid out frequently
Generally, systems that reward employees frequently, say with every paycheck are more effective motivators than those that pay out only annually. However, for more senior executives or people engaged in longer-term work, such as a big construction project, it may not be feasible to incent more frequently.
Remember, there is not a universal plan that will fit everyone’s needs. The approach you take should reflect your unique needs and management philosophy.