Competitive compensation plans help businesses to recruit, retain, and engage the best employees. In the absence of such a plan, employees often feel underappreciated and may be more likely to accept an offer from a competitor. However, businesses also need to have a good incentive plan in place.
Unlike a compensation plan, an incentive plan is specifically designed to pay for performance. The most obvious example of such a plan is the payment of a sales commission.
If you find that your present plans are not meeting your needs, here are some tips on the best way to craft the perfect incentive and compensation plan:
1. Determine Incentive Goals
In order for incentive plans to be effective, employers must determine the goals that employees will be working toward. Otherwise, no one will know exactly what is expected of them.
If goals are not clearly spelled out, employees will be unable to determine how close they are to reaching their goals. In such a case, they may become discouraged and quit just short of qualifying for an incentive.
The incentive program should also tie goals to rewards and clearly identify the milestones at which incentives will be awarded. Here are several examples of incentive goals:
• Hitting a specific sales number
• Signing up a predetermined number of new customers
• Increasing gross margins
• Completing a course and becoming certified
2. Individual vs. Group Incentives
Incentives can be awarded individually or on a group basis. There are pros and cons to each. One pro of individual incentives is that only the employee responsible for achieving the goal receives the incentive.
This avoids paying incentives to multiple parties who had little to do with achieving the goal. However, this can also be a con if the individual received help in accomplishing the goal. For instance, did another employee create the product being sold or design the software that makes the product functional?
Group incentives, on the other hand, award everyone that was involved in achieving the goal. The con here is that some group members may be more responsible for reaching the goal than others and may feel that a group incentive is an inequitable compensation. Here are some examples of both individual and group incentives:
• Extra time off
• Gift or gift card
• Office Party
• Sporting event tickets
• Golf outing or spa day
It is important to determine upfront whether you plan to award individual or group incentives or a combination of the two. The most effective incentive programs find a way to achieve a balance between the two.
3. Seek Feedback
It is always a good idea to listen to employees. They may think of something that would never occur to upper management. Find out what type of incentives would make them excited. Would they prefer to work for an individual incentive or a group incentive? Do they have a particular incentive that they would like to include in the program?
You can also get feedback after an incentive program has been in place for a while. What do the employees like or dislike about the program? Do they feel like the incentives match the task? How could the program be improved?
4. Look at the Competition
Do you know what your competition is offering in the way of incentives? How do they structure their programs? If you think that they have a good incentive program, you could create a similar one.
You could also ask your employees if they are familiar with any of your competition's incentive programs.
5. Make Incentives Universal
It is important that both your compensation and incentive programs are universal, meaning that they benefit all employees. Otherwise, employees will feel like they are being treated unfairly. The program should also be flexible and have the ability to award different incentives to different employees.
This is because not all employees will value the incentives in the same way. For instance, a sports enthusiast might cherish some football tickets, but other employees might prefer a day at the spa. In either case, it is important to structure the program in such a way that all employees view it as valuable.
6: Track the Success
Tracking the success of almost any program or endeavor is important. Otherwise, how do you know it’s working? The same is true for an incentive program. When you first implement an incentive program, track its progress and find out how well it is doing.
If there are some things that are not working as well as you would like them to, be flexible and willing to make changes.
Here are some ways to track the progress of a program and determine whether it’s working the way you want it to:
• Compare retention rates
• Compare budgeted hours to actual hours
• Compare gross margins on a quarter-by-quarter basis
Here are tips on how to change the program if it’s not as successful as you had hoped:
• Brainstorm with employees
• Redefine goals
• Look for ways to make the program fun
Don’t Neglect Compensation or Incentives
A good incentive plan and compensation package will contribute to the success of most businesses. An excellent example of this is Delta Airlines. According to experts, the Delta employee benefits program is one of the primary factors in Delta's success.
You can also create the perfect incentive plan and compensation package for your business by following the six steps listed above.