How to Establish Successful Employee Incentives for Your Company
So, how do you motivate employees to become more productive? By offering incentives so that they act in their own best interests. If you design an incentive system well, then you will only pay for incentives from the profits that your motivated employees generate.
An effective incentive system is easy to understand, empowers employees to control the results, and aligns with your company’s goals. It should also be large enough to inspire action and paid out frequently enough to continue the momentum of inspired action.
Let us now take a closer look at all these elements of an effective incentive system:
Is It Easy to Understand?
Sometimes a smart manager can invent an incentive system that does exactly what it’s supposed to do–providing fair compensation to anyone who helps to grow and build your company. While it may be financially sound and use exacting metrics to measure performance, it may have so many layers of complexity it baffles employees. Since they can’t figure out how it works, they don’t feel motivated to be more productive. However, if it is easy to understand, then employees will know exactly what to do to earn their bonuses.
Can Employees Control the Results?
If you base the incentive on the overall productivity of a department or other business unit, it becomes somewhat abstract. Since employees can’t see a direct correlation between their actions and results, they are less likely to feel empowered enough to make a difference. Incentives have to be personal. Employees should be able to see a direct correlation between their performance and their rewards.
Does It Align with Your Company’s Goals?
Most employees will do what you pay them for. Only a few will do more than what you ask. So, if all you pay your employees do is to produce a higher volume of work, then don’t expect them to provide a higher quality of service, too. Tie your incentives to all your company’s goals, not just to a few of them.
Is It Large Enough to Inspire Action?
If you only offer small incentives, employees may either feel indifferent to them or only make a token effort. Effective incentives are those that are at least about 10% of compensation.
Will It Be Paid out Frequently Enough?
The longer it takes employees to see their incentives, the more abstract it will be. In fact, they may even forget that they are eligible to earn bonuses. Most employees feel highly motivated when they can see incentives in their paychecks. They can appreciate the direct correlation between their extra effort and the extra money in their paycheck.
However, paying out bonuses in every paycheck only works for small projects. It will not work for executives and project managers because the results they produce will take time to manifest. For people involved in long-term projects, quarterly or annual incentives will still work because they will be receiving larger bonuses.
In conclusion, improving employee compensation by providing incentives can make a huge difference to your company’s bottom line. Employees are more likely to be engaged and proactive. They are also more like to push harder to get results in the face of obstacles, showing more grit in resolving problems. However, the incentive system has to be well-designed for it to have a positive impact. If you roll out an incentive system that does not work, then it’s a mistake to just scrap the idea altogether. Instead, you have to troubleshoot what didn’t work and then try again. Several iterations may be necessary before you have an incentive system that works well.