What Small Businesses Need to Know About Incentive Programs

One of the most important skills that a business owner can learn is how to motivate their employees. Without proper motivation employees will lose productivity, increase their absenteeism, be less satisfied with their jobs, and be more likely to quit. All of these effects of insufficient motivation cost businesses money, which is why it is important that business owners develop and implement incentive plans that encourage their employees to perform at or above par.

There are two different types of incentive plans, the non-performance based incentive plan and the performance based incentive plan.

Traditional Non-Performance Based Employee Incentive Plans

The most commonly used incentive plans are those that don’t take daily performance into consideration. In fact the only requirements that the benefits from these types of incentive plans have are that the employee work for the company and meet the tenure and weekly hours worked criteria. For example health insurance is an incentive that many employees want. Companies that offer health insurance to their employees do so as a benefit for working for the company, not because of specific quotas that have been met. The company may restrict who they offer this benefit to based on full time or part time status of the employee, but it is not tied to the employee’s productivity.

While non-performance based incentive plans can help to attract and keep good employees, they don’t necessarily motivate employees to perform better. In fact a great non-performance based incentive plan that is not coupled with a performance based incentive plan may actually work against your productivity goals. However, while non-performance based incentive plans usually don’t inspire employees to be more productive, if properly leveraged, business owners can use them to motivate employees to work harder and to be more productive.

To do this the employer can offer to improve the benefits of those employees who perform better. For example, if the company offers health insurance to its employees but only covers a portion of the premium based on seniority and employment status, the business owner can leverage this benefit as a motivation tool by offering to increase the portion of the premium that the company pays for based on the employee’s productivity rates, or on their ability to exceed quota goals. This leverage is not only a great way to improve employee motivation and productivity, but it is also a less expensive way of improving the benefit plan compared to developing, implementing, and monitoring a separate incentive plan.

Performance Based Employee Incentive Plans

Performance based employee incentive plans are those that structure the reward that is given to an employee based on their work performance. The rewards can take the form of bonuses, higher hourly pay rates, perks, paid days off, or gift certificates. The type of reward will depend on what motivates the business’ employees. Business owners should understand that not every employee is motivated by the same reward, and as a result of this, employers will need to know their staff before they develop their performance based incentive plan. However, in most cases money is an effective reward.

To ensure that the performance based incentive plan is effective it will need to be structured so that the rewards earned because of performance are separated from the employee’s regular pay. Employees need to physically see the reward that they have earned. This may mean cutting a separate bonus check, or by delineating it on their paycheck. It is also important that the bonuses are given in a public manner, and that the recipients are praised in front of the other workers. This helps to both reinforce the positive work behavior in the recipient, and it helps to encourage the other employees to strive for the bonuses. Finally, studies have shown that incentives that reward individual performance are more effective than group incentive plans.

Employers should keep these tips for creating an effective performance based incentive plan in mind when they are developing their own plan.

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