Effective Incentive Program

A company does not produce a benefit in itself. It is the people who get them. Almost everyone can improve their work, whatever their role (commercial, administrative, management, …). But what makes the employees reach their full potential?

Work individually with each of them to help them perform better can be effective, but without a doubt, the best and most cost-effective solution is to build a system of incentive-based performance improvement. The challenge is to unlock the full potential of the internal organization and, as we shall see in this summary, there is a long series of techniques and systems to achieve it.

Establish An Incentive Program:

Despite the intrinsic usefulness of the new theory just discussed, it can be said that there is no magic bullet to motivate people to get the best results in any situation. The theory guiding us, but how we can design a special program to encourage employees to our company? Program development requires five steps:

  • Setting goals
  • Definitions (revision) of the work
  • Selection of incentives
  • The budget allocation
  • Communication with participants

The sequence begins, then, with the setting of objectives to be achieved by this program. An important part of this first phase is to perform a complete analysis of the organization, to know where it is at any given moment and show where we want to go with the new plan. The second step is to determine the exact role of each of the people who will participate in a new incentive program.

This phase is fundamental, because on many occasions the low performance of employees of a company not for the fact that they do not carry on their work, but because they do not know in detail what is expected of them. In the third stage, one enters fully into the selection of the most appropriate incentives to achieve the set goals.

By then, It is necessary to allocate a budget that takes into account the cost coming from the new program, coupled with the additional income that will be obtained, and switching to expose phase of the program for the participants. Each of these stages is analyzed in detail below.

A. Setting Goals:

The starting point of the program to motivate employees to decide what we want to achieve with the implementation. In a sales-oriented organization, the goal could be as follows:

  • Increase overall sales volume.
  • Increase the volume of sales of certain products, for specific groups of customers or in certain geographical areas.
  • double sales through certain distribution channels.
  • Introducing a new product or service.
  • Improve customer retention.
  • Pay off old or past season stock.
  • Increase retention or morale boost sales teams.

Each of these objectives can be combined to a greater extent or smaller. However, the secondary objectives need not conflict with the primary objective. For example, the introduction of new products through new distribution channels should not interfere with the general policy of maintaining current customers and promote their routine purchases.

Set a sales target associated with relative ease, because their measurement is done immediately. But the company establishes a program to motivate employees is not only dedicated to commercial tasks, but also for those who perform administrative functions or related to productive tasks. In this case, the destination must meet the requirements of multiple measurable (quantitative or qualitative), and that the time and money spent on monitoring them offset the expected results of the implementation plan of motivation.

If one of these requirements is not met, the proposed destination can be a mere wish list. If, for example, a company characterized as an intention to reform the level of attention that customers receive from the phone after-sales service, probably the ideal size will record all telephone conversations and analyzes the content of them, however, will not offset the cost of the possible benefits. It would be more appropriate to survey clients which will provide qualitative statistical data for the evaluation stated objective.

Among the improvement plan applies to employees of non-commercial we can highlight the following:

  • Reduce absenteeism.
  • Minimizing costs.
  • Generate new ideas to intensify efficiency.
  • Promote teamwork and loyalty to the company.
  • Increase productivity.
  • Increase employee retention.
  • Strengthen budget control.
  • Renewing the communication skills of employees.

The aim must meet the criteria of reality. People, who are responsible for setting they need to find the right answer to each question is: has that goal been met before? If not, are there any new circumstances that allow us to the intuition that at this time they can put into practice ?; Participants in the plan will find motivation in this goal a challenge that invites them to overcome their current performance? Or whether they consider it a declaration of intention only?

B. Definitions (revision) of the Work:

Incentives alone do not imply an increase in short-term performance. Plan adequate employee motivation must have a training plan that strengthens the knowledge about the role and functions that everyone does in an organization.

One of the largest financial services companies in the UK is challenged to more accurately identify the needs of the client before you can offer them a financial solution. training courses were put in place to ensure that employees are in charge of collecting the client’s needs are adequately trained.

However, despite this training, lots of templates where the customer needs that note is incomplete or simply not filled in correctly, so that the next sales echelon does not have sufficient criteria to offer a proper service to customers. customers, with the consequent risk of losing them.

The company then decided to create a system of incentives to reward employees to gather all the accurate information of potential customers. If the template does not appear complete, will be returned to the person in charge of the template and the latter will not receive any commission until the fault is corrected.

sales agents rewarded with a cash prize for each correct customer mark. Also, the seller who makes the fewest mistakes wins a holiday stay for two people. Three months after the system is implemented (training + incentives), 95% of files sent without error, so the problem was solved once and for all.

C. Selection of Incentives:

Once the destination has been decided motivational programs and functions of each job has been formed, the next step is to find the right technique for employee incentives, in turn, will improve the outcome for the company. The most important thing is that the mechanism to stimulate the staff were clear and obvious. When a new incentive program was first introduced to the employees, what is your immediate reaction? Is it clear to you or you adopt the attitude of amazement?

The main lines of the system is a good incentive:

1- Who to Appreciate.

One of the most frequent mistakes when creating a system of incentives is for the basic performance of absolute measures, which rewards only those who sell the most. Every incentive schemes need to be a winner, but if possible, of the initial intuition that these people or groups will, there is a possibility that the system will not be able to stimulate anyone (the exclusion of people who, for certain circumstances, usually those results get ). Imagine a company with 100 sellers and what each had sold varied between 1 and 100 million dollars a year. We can choose between two systems of incentives:

  • Absolute system (implying little motivation): 10 reward sellers who generate the most turnover per year.
  • Staggered system (implying more motivation): prepare three groups based on sales achieved in one year and award the top five sellers in each step.

Tiered system successfully stronger motivating employees. But also, one must not lose an eye to the fact that the 10% increase in the performance of a group of employees with the average yield can contribute more to the company (in absolute terms) than the 10% increase in employees. with higher performance, if only for the fact of being a larger group.

2- Competition System.

For employees to achieve the incentive promised, there are three ways to “compete”: (1) get a prize if the personal goals that have been set are met, (2) get it if it occupies a leading position in the ranking of participants and (3) seek participation in the prize draw as a specific performance threshold is reached.

In the first case, people feel more committed to the fight to end that takes into account their particular situation, other than the fact that everyone involved feels that they can win through this system. The drawback is that, once a personal goal has been reached, there would be no incentive to move forward if the revised method was not established.

In the second case (first place in the ranking), the competition continues to live up to the end, because every person (or team) observed the development of their opponents to keep them awake aspirations. However, the level of commitments lower than in the case of a personal goal, since it is known beforehand that there will be some winners and the rest will get nothing.

With the third possibility, the higher the performance, the more possibility there is to win because participation was obtained to draw a particular purpose are met. This system is used by companies that do not have a big budget for their employee incentives. It carries an intrinsic element of demotivation: anyone, even the most mediocre of employees, can be lucky enough to keep the prize. To overcome this effect somewhat, those who managed to meet the minimum requirements to join the “competition” may be allowed to participate in the lottery.

3- Who Set Goals That Generate Incentives.

One way to determine the incentive for the participants themselves to determine in advance the improvements they expect to achieve their performance during a certain period. With this method, the higher aspirations, greater reward if success can be achieved. Experience shows that, in general, more people achieve higher levels of performance even more ambitious goals. People are amazed at how much they can increase if the right conditions exist.

4- The Establishment of Thresholds and Maximum Limits.

The usual thing is to limit the threshold from which the participants receive incentives. Imagine, for example, a system where every commercial that exceeds 100% of the sales made in the previous period, started generating commissions.

When this limit is exceeded, you can continue to generate incentive infinity or find the maximum limit. If the company has closed the budget to dedicate to incentives, should set a limit on it. If not, it should be borne in mind, however, that the exceptional performance (due to the state as a favourable economic situation) may lead to incentives that companies have to face.

Another alternative is to determine the threshold of where the participants gather incentives but taking into account the performance before that threshold. In the above example, if the 100% threshold is exceeded, the underlying sales also generate some kind of commission.

5- Speeding the Beginning (and end) of the Incentive System.

One of the disadvantages that are normally present incentive system is the slowness with which the staff to adopt the rules of the game. Onset usually slow for several reasons: ignorance of the rules, poor communication to participants, believe or not believe.

One formula to avoid the kind of mismatch is to offer additional incentives at the start of a campaign to attract employees. Similarly, also at the end of the process, it is possible to introduce mechanisms that accelerate the achievement of planned objectives. In the latter case, the formula will be adopted as an emergency measure, that is, if the expected performance is below expected, because if it is known from the first moment that additional incentives are expected in the end.

6- Weigh Performance.

Participants in the incentive system should feel confident that the system is fair. Imagine a company that wants to encourage a network of distributors. You should consider, for example, those who work in the more densely populated areas, because they tend to suffer from higher administrative costs – office leasing is more expensive, on average salary, … Therefore, to motivate them to effectively, it would be necessary to offer incentives proportionately higher than those offered to those distributors with less fixed costs.

Besides, each company must decide, and not light, the products or services will be included in the incentive system. Thus, some of them, that are sold “himself”, may not be the most appropriate for this case. Companies can also choose that, for example, the aim of increasing the number of customer service, in the face of incentives, doubling of reducing absenteeism.

D. Budget Allocation:

The budget for the program of motivation should be regarded as a medium-term investment with a certain payback time. Therefore, there will be fixed and variable costs associated with the start-up and administration, which should be taken into account because they can be significant. In most cases, the initial budget would be more than offset by the return of revenues to be generated. But the company should be in a position to face losses if, for whatever reason, this program does not bear the expected results.

E. Communication with Participants:

The regulations governing the system of employee motivation should be clear and properly communicated to all participants before the start. Without a complete, communication should at least take into account these aspects:

  • Who can participate in the incentive system?
  • What’s the purpose.
  • What is expected of participants?
  • How long it will last.
  • What incentives and what should be done to achieve it.
  • What is the responsibility of the participant after receiving incentives (taxes, security costs, …).
  • How the results of the process will be communicated.
  • How disputes will be resolved.
  • What would be the mechanism to maintain morale among participants and know the evolution of the program (web pages, e-mail, …).

Does that really Motivate Money?

Now that the structure and budget of the campaign to intensify the performance of employees have been laid down, we had to drive out “ghost” that pops up every time we talk about incentive: money. Because most people, when faced with the problem of motivation, the first thing they think about is offering more money to the employee, a thorough examination of their actual effectiveness is required.

To achieve the high performance of our employees, why not just offer them more money? It is the first reason why people leave a job, to go looking for new horizons in other companies, so it is not surprising that money is seen as a powerful stimulus. There are many existing mechanisms to increase the number of money workers receive:

  • Basic salary.
  • Commission for sales made.
  • Paying for performance improvement (in a non-commercial work).
  • Stock options.
  • other benefits.

The company’s remuneration policy basing them only on wages fail to increase their staff’s work. There is no incentive to strive in the workplace or to make extra efforts beyond your pride or satisfaction that your work can provide. Therefore, the results in terms of motivation, usually installation in company culture minimal effort.

Fortunately, more and more companies are incorporating fixed remuneration (salary) with some other types of remuneration based on the results. In work with a more commercial profile, the sales commission is usually the method most used by companies to encourage workers. But for this monetary mechanism to work it is important to take into account the following rules:

Rule No. 1: a balance must be found between what is accepted as a fixed salary and commission. If the balance falls on the salary side, people tend to regard the commission as “pocket money” and the power of their perverse incentives. If the commission is very high about the fixed salary, employees will decrease the quality standards of their duties (less attention to each client), or even their level of professional ethics, to secure their income at the end of the month. As a general rule, the commission percentage between 15% and 35% is usually effective.

Rule Number 2: Rules to drive sales must be clear. In many industries, it is becoming increasingly difficult to attribute the sale to a specific person. This is because of the different roles and, therefore, some interference in the sales process: identifying potential clients, first contact, presentation, negotiation and closing. The best strategy is to set a clear strict rule that employees can adhere to because as the value of a product increases, the more likely deputy for the commission.

Connecting monetary remuneration for the performance is not unique to a sales-oriented company or department. Many organizations (including the government) adopted a strategy of linking financial compensation to meet certain service standards. This remuneration may take the form of participation in the profits of the company: stock options, gainsharing, bonus, …

The incentives can be effective, but common to a set of problems arise that hinder its operation. First, the system that links individual performance with the benefits obtained by the company at the end of the year is usually no incentive labor, especially in large enterprises, private performance is usually not a decisive factor when it comes to that company to benefit more. If a worker can not see how their efforts to help increase corporate profits, it will be very difficult to change behavior.

On the other hand, the extra money that can be obtained usually reach the hands of employees at the end of the year (even if the audit elaborate later), so the incentive is not something dynamic to fight for a month to month, and they tend to forget because of their long-term fruit. Finally, the system can report additional income that represents at most 5% of basic salary, which is not enough to trigger a change in behavior.

So why continue to use only the strategy of offering more money to the employee when the data seems to indicate that it is not the best formula? In a study by the University of Rochester and published in Business Week, the performance of 2,000 executives at 1,200 companies in the United States was analyzed and concluded that there is no direct correlation between pay-for-performance and benefits from companies.

One of the greatest experts in the effects of that money motivated employees, Victor Vroom, confirmed that when a person has reached a certain level of comfort, offering them more money only damage the performance, because it produces what calls Vroom stress. and anxiety that is not productive. Earn less money does not make up for the extra effort required.

All this evidence has led to more and more companies using non-monetary incentives. An example of this transformation is the Mazda Motor of America, where they are seriously considering what would be the best choice to motivate them 2,000 sales managers and more than 6,000 ads. To make a decision, they do test: half of sales employees who offer a financial reward for each sale made; for the rest, the program depends on their performance they will get a prize or travel material.

The results were surprising. The group received in the form of incentives achieve the level of sales is much higher than any other part of the employee. In particular, the former exceeded their sales target by 15%, while the latter simply do it by 2% .the emotional impact of a real incentive (trip or gift) more powerful, from the standpoint of behavior modification, similar incentives of money “.

One of the aspects that make bad motivator money is not their “trophy image”. People do not like to talk about money earned in the past year; On the other hand, it was interesting to remark with friends or family who, thanks to his work, he has gained a trip abroad, some tickets to a show or any other type of reward non-monetary, she did not acquire in the company, he did not will be obtained with money.

Note, furthermore, the money tends to dissolve into daily expenses and a transfer company incentives to employee bank accounts, everything is confused with the basic salary. Its use as a reminder that both ends of the performance immediately. But who does not like to review the photos unforgettable journey that the company gave him a few months ago?

The conclusion of all affected until now was not able to completely remove the monetary incentive, because this would be nonsense. But you have to put it in perspective when it comes to setting up an effective motivation system. Money can reward people for their work and provide economic stability, but rarely work better than non-monetary incentives if continuous improvement in performance is sought from time to time.

Flexible Benefits Plans:

Among the incentives to motivate and increase employee loyalty (override the incentives associated with the sale or performance), there is a wide range of social benefits, depending on the country, more or less relevant as part of the global remuneration received by the employee. We refer to those benefits that seek to improve the security and stability of workers, such as life insurance, subsidies for maintenance and transportation, private health insurance, child or education for workers’ children, retirement, etc.

The importance of these subsidies in the motivation of employees can not be ignored, but the management is right depends on whether they are effective or end up being a waste of time and money. In many companies (especially big ones), each of these benefits is managed by different departments and there is no centralized communication policy with employees.

In this way, in the absence of true “promotional campaign” this incentive, workers either do not realize what they receive or have ideas that are very vague on the value of what is presented to them. On the other hand, a common trend is that all employees have access, depending on their hierarchical level, for the same benefits.

To give coherence to the management of all the benefits and saving imbalances as mentioned, a few years ago called the Flexible Benefits Plan (Flex Plan) appeared in the United States. The system is trying to centralize all social benefits in one department, better manage resources and allows employees to choose the benefits that best suit their personal or professional situation and lifestyle. In short, the system consists of assigning to each employee (based on a series of parameters) some “credits” that can be redeemed for products or services that the company makes available to them.

Communication with employees is usually done through a printed catalogue which contains a variety of alternative or through the web page. Having a website, apart from the savings that require management, is a way for employees to more actively involve families in the selection of benefits, because not only do they include incentives traditional but many discounts from the companies, the possibility of redeeming “credits” that are assigned to travel, subscriptions magazines, etc.

In the end, Flexible Benefits Plan is part of the puzzle of motivation, and if they are integrated into the performance improvement culture, they were able to become one of the driving forces behind its efficiency.


There is not a very easy recipe to unlock the full potential of human resources organization that port in it. In some monetary incentives that the company will improve the performance of employees, while in others a combination of cash and in the form of rewards possible way. The most decisive aspect in this regard is to understand the reasons that lead people to change their behavior and take advantage of the ability to grow steadily over time. There are many resources that a manager must provide incentives for employees of his company.

By Puneet Sharma

Puneet is an author in Human resources and an intelligent Search engine content marketer. He is specialized in reading and writing about human resource management and automating business management.

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