What elements do employers need to consider when creating incentive pay plans? Our partners at Terkel asked HR/recruiting professionals and business leaders their insights on developing incentive pay plans.
From attainability to transparency, there are several things to consider when creating impactful incentive programs. Here are 10 things to consider when creating incentive pay plans:
- Use Anonymous Feedback
- Make Plans Attainable
- Reward Innovation and Results
- Know Your Employees
- Thoughtfully Define Success
- Make Incentive Pay Plans Short and Long-Term
- Ensure Plans Support Company Goals
- Provide Transparent Incentives With Each RolePay Quickly to Keep the Momentum
- Determine the Right Balance of Incentives
Use Anonymous Feedback
“When it comes to an incentive plan, many employers tend to stick to the more traditional offerings. However, with many team members working remotely, or if you’ve put a hybrid model in place, then that definitely changes things up. What once was of great benefit may go unused in this current business environment.
Instead, take inventory of what your team actually wants and needs. For example, some companies are beginning to offer pet insurance or provide a stipend for remote workers who require tools, apps, and office supplies.
When you have your team’s best interests in mind, the chances are good that you won’t go wrong. You can also ask for anonymous feedback from your team so that you know exactly how they feel about your proposed benefits plan.” —Greg Gillman, MuteSix
Make Plans Attainable
“Incentive plans are great motivators as long as they incentivize the right things and are attainable. While they don’t need to be easy, they do need to be reasonable. There is nothing more demoralizing than a brass ring out of reach no matter how hard one tries to grab it.
Incentivize the proper efforts and reward and recognize those who accomplish their set goals. Your odds of fostering a positive environment will increase.
Oh, and if you do make a change to your incentive plan — make sure you communicate it openly, effectively, and consistently until everyone understands the new expectations.” —Tom Carr, HR Leader
Reward Innovation and Results
“Employers need to understand that creative problem-solving is a highly effective skill that’s needed in dynamic and high-functioning teams. When you shift the focus on simply chasing outcomes and being too result-oriented, it can hamper your workforce’s creativity and it may be damaging to their development in the long run. Rather than simply rewarding the best results, employers should also prioritize rewarding creativity which will urge members to think out of the box rather than foregoing that option.” — Philipp Zeiske, Zeitholz
Know Your Employees
“Every team is unique, and the incentives that work for them are, too! When creating an incentive pay plan, you need to know what will motivate your employees and match your company’s goals. Check-in with your team leaders to learn more about each individual team and what they believe will actually incentivize your employees.” — Beth Baranski, Markitors
Thoughtfully Define Success
“The requirements and criteria for your incentive pay plan need to be challenging but not to the point where it’s downright unachievable. To get this balance right, employers need to carefully evaluate the success metrics of their employees and identify the curve where employees are adequately pushed out of their comfort zone and feel motivated rather than dejected.” — Riley Beam, Douglas R. Beam, P.A.
Make Incentive Pay Plans Short and Long-Term
“Sometimes, incentive pay plans lose their vigor simply because they are annual goals as opposed to more short-term, easy-to-digest goals. To reinforce both overall performance and short-term performance, consider having incentive pay plans that are monthly, quarterly, and annual. This will create immediacy, all the while notating that yearly performance is still a priority.” — Lori Price, PixieLane
Ensure Plans Support Company Goals
“An incentive pay plan must fit with your business strategy and goals so that it can promote company success. If not, then putting an incentive plan in place can prevent your business from meeting its objectives. Instead, it can end up costing your company more rather than lead to increased revenue.” — Michael Hennessy, Diathrive
Provide Transparent Incentives With Each Role
“For lots of small companies, incentive pay plans are discretionary, subjective, and determined at least partially upon the way that an employee is viewed by their boss. To allow for an organized and effective incentive program, set predetermined benchmarks and pay rates associated with each role and vertical.
These benchmarks should be static, distributed widely, and readily available. Such a process will eliminate bias and ensure that incentives are equitable to all.” — Inesa Ponomariovaite, Nesa’s Hemp
Pay Quickly to Keep the Momentum
“For an incentive pay plan to work, the employee needs to feel the rush of excitement that comes with success. A payment process that’s mired in three or more weeks of internal approvals or delays will take the thrill out of the win. A dulled sense of effort-vs-reward will cause the incentive pay plan to lose momentum. Pay as quickly as possible for big results.” — Karen Zachary, Anchor Virtual Assistants
Determine the Right Balance of Incentives
“It’s all about balance with incentives. In our incentivized positions, we make certain that our employees have a safety net while they are training and during the slower winter season, but we are also careful not to make that net so large that they don’t need to earn their incentives.
Many incentivized positions go too far one way or the other. Some employers offer a base salary that is next to nothing and have a high turnover as a result. Most employees never make it past training, or if they do, the company hits a lull and loses them.
Some companies offer a base salary that is too much, and their employees are not motivated to hit their goals and earn their incentive pay. After a lot of adjustments, I believe that we have found the perfect balance between base and incentives for our employees to be at their best.” — Charles Leduc, Mold Busters
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