How to Create Incentive Plans That Work to Improve Employee Performance

Learn how to make incentive plans and types of performance-based incentive plans that work for employees.

Incentive plans are used to give your employees something in exchange for doing specific, goal-oriented work. Though they could get confused, employee incentive plans are not the same as employee benefits. Incentive plans have entirely different desired outcomes and reasoning behind why you should create them and how they work. While the value that your company brings to employees and what they are given as perks are important, incentive plans bring different value, both to your employees and the company.

We’ve already talked about why it is important to have incentives for your employees – now let’s get into how to actually follow through with an internal incentive program.

What is an incentive plan?

An incentive plan is a program designed to motivate and get employees to accomplish their goals and keep staff on the right track to do what you need them to do. Incentive plans can be created for any level of employee.

Incentive plans help influence your team to reach their KPIs and company goals. A good plan can help a salesperson appreciate that they have control over making a sale, or a call handler booking a prospect into an appointment. As owners and managers, you must decide what you want your employees to accomplish. A good incentive plan is considered to be fun, exciting, and rewarding.

The objective of an incentive plan

Incentive plans are great for employee morale, but that shouldn’t be the determining factor of the plan. The real objective of an incentive plan is to improve employee performance. The definition of an incentive plan is to change employees’ job behavior and affect performance. An incentive plan works to motivate employees to work better and faster, and to go above and beyond their regular job duties.

Incentive plans aren’t the equivalent to a yearly bonus – rather, they work for short-term goals that will lead to achieving your longer-term goals. By creating incentive plans to achieve goals–or surpass goals–with a shorter timeline, you are putting your business in a better place to go beyond your yearly KPIs and achieve a higher ROI.

How to create an incentive plan

Choosing the right plan depends on what you hope to achieve; you have to decide which type works for your company and your employees. There are basically three main categories of incentive plans: individual, group, and company. Individual plans reward each employee based on their own merits and can be tailored to suit each employee. Group plans depend on the entire team to achieve a goal together to get their incentive. Company plans reward all who work for that company when the company reaches a specific goal as laid out.

How to structure incentive plans that work

Once you have decided on an incentive plan that is right for your company, then you need to create a plan that works for your office. To do this, you will need to conduct a need analysis. This should reflect your current situation and be tied in with your goals. Once you have set your goals, the next step is to structure your incentive plan; the results should be measurable and objective.

Below are some questions to ask. The answers you come up with will help you identify which incentive plan will work best for you.

• What does my team need to improve or work on?
• What do I want to accomplish this year?
• Are customers getting the experience they deserve?
• Does each prospect have a different experience when they call the office?
• How is team morale?

To implement an incentive plan, you need to clearly define the role of whom you are incentivizing. When creating an incentive plan, keep in mind the risks. The incentive plan you choose can and will change the behaviors of your team. A poor incentive plan will lower morale, create conflict, and ultimately encourage behavior that you don’t want. Your incentive plan should benefit the employee and benefit the office. It will also allow you to see who your top performers are and who may be a good fit for a deeper role in the company than they currently have.

Sometimes incentivizing your team in one area is not enough; a hybrid incentive combines two or more goals for your team to meet. It incentivizes your team to concentrate on multiple areas and rewards a broader range of desired outcomes. Hybrid incentive plans allow your team to see the correlation between the goals that are set and met.

Some possible indicators to measure for an incentive plan are:

• Hitting a specific call-to-appointment conversion rate
• Meeting a certain sales quota
• Retaining a specific number of clients
• Improving on phone skills with a personalized scorecard
• Avoiding accidents and injuries at work
• Work attendance

Keep in mind that these ideas will need to have specific and measurable data points attached to the incentive plan for it to be successful. You cannot incentivize something that you cannot measure.

How to implement an incentive plan

A good way to implement your incentive plan is to define its theme. Develop an exciting promotional campaign for the launch of your new employee incentive program just as you would for an actual product or campaign launch. You’ll want to capture the imagination of your employees. Explain your objectives and rewards for their success. Once employees are shown how they can make a difference, they’ll do it.

When implementing your incentive plan, communicate it often; the most successful companies make a big deal about their winners and awards. Make them feel special, and others will notice. Let participants or teams know their current standing in the incentive program.

Many companies prefer to test the plan on one department or division before rolling it out to the whole company. This allows time to make revisions and improvements. Be prepared to experiment with your incentive plan; you may not get it perfect on the first go-around. Incentive plans, just like goals, should change over time as your needs change. As your team continues to advance, your incentive plans should develop as well.

Employee rewards don’t have to be large or costly; in many cases, small rewards are equally effective because they can be given more frequently–and frequency is a crucial element of a successful rewards program. Creativity, not cost, is the real key to building a great set of employee rewards everyone will be excited to earn.

Read our article on no and low-cost incentive ideas here.

You want to create rewards that your employees will be excited to receive. Again, these do not always have to be monetary rewards – this is time to put your creative hat on and see what different kinds of incentives you can come up with that will get your team excited and motivated!

Here are some out of the box incentive ideas that could spark the level of employee performance:

• The best parking spot for a month
• Concert or sporting event tickets
• Early release
• Come in late
• Work from home day
• House cleaning
• Longer lunch breaks
• Team lunches
• Gift cards to local restaurants, spas, and other local services

Does my business really need an incentive plan?

Yes!

Why establish incentive plans? Although we’ve touched on this already, incentive plans are tools used by small and large business owners to encourage, recognize, and reward exceptional performance in their employees. There are numerous advantages associated with encouraging your staff through the use of incentives.

• Motivation – Incentive plans were created for the express purpose of urging employees to motivate themselves to higher achievement levels. Incentive plans that reward employees for reaching pre-established goals provide encouragement and give employees something to aim for.
• Increased earnings – Most incentive plans are tied to earnings. The more revenue an employee generates for a business, the more he or she is rewarded through the incentive plan. Businesses providing incentive plans have the advantage of seeing their bottom line rise in direct proportion to the increased productivity their employees generate. In this sense, incentive plans can be self-supporting; in that business essentially pays for performance.
• Loyalty – Employees who can positively impact their earning potential through incentive plans are more likely to be loyal to the company they represent. This is especially true if the incentive plan has residual value.
• Collaborative Efforts – When employees work together on team incentive plans, they establish a sense of camaraderie, pulling together for the common good. This can strengthen bonds between colleagues, managers, and business owners. The advantage of a unified workforce is a more efficient, pleasant work environment for all.

For incentive plans to work, it is critical to reward employees for achieving quantifiable results that are within their control. Establish performance goals that are attainable with hard work, but no too easily achieved. The goals should be simple and straightforward enough so that employees understand both what they’re expected to do and what they stand to gain if they accomplish it.

How should you communicate these goals and the incentives to your team? Download our monthly team meeting slide deck here to get you started.

Remember, there is not a universal plan that will fit everyone’s needs. The approach you take should reflect your unique needs and management philosophy.

Bottom line: have fun creating your incentive plan. The more fun you have, your employees will have just as much fun reaching their incentive goals!

Do you have enough data to measure performance in an incentive plan?

Do you currently incentivize your team? Let us know your plan below!

Need help setting goals and communicating with your employees to come up with incentives? Download our free team meeting slide deck here and subscribe to the blog for more valuable insights like these.