How to Test Your Incentive Plan - Deepstash

How to Test Your Incentive Plan

  • Define the right group for the plan. In smaller companies, the right group is usually the whole staff. In larger ones, it could be a branch or a functional unit, but be sure it includes everyone, support staff as well as front-line workers. Remember that business is a team sport.
  • Draft up a plan. A handy rule of thumb is to distribute one-third of the incremental gains to employees in the form of a bonus while retaining two-thirds for the company.
  • Spell out the details. How much do we get and when do we get it?

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The Psychology of Incentive Plans

Incentive plans, by definition, are supposed to affect people's behavior on the job, day in and day out.

If people know their job performance is linked to an incentive like a quarterly bonus, they'll likely develop new ways to produce better results. They'll naturally innovate to become more efficient--finding ways to finish work faster or improve quality without sacrificing cost. They'll seek new approaches to better serve customers. In short, engaged employees live in a world of cause and effect. They understand how their actions contribute to the success of the entire venture.

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It's often said that nobody works for money alone and that nobody is motivated by the prospect of more money. There's a lot of truth in that. If you're doing a job day in and day out, you may be motivated more by the demands of the work itself and the people you're working with than by the prospect of financial gain.

But people always like to win, and they like to feel that their efforts to help the company win are appreciated and rewarded. Nothing says "thank you" like several weeks' worth of extra pay.

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Free food, Beer taps and ping pong games in the break room do not help employees feel connected with the company's vision, mission or direction.

Employees prefer equity/stock compensation, the non-cash payout they get by being allocated restricted stock options. 

Employees then become partial owners of the company, vested into how it performs, increasing their motivation to be more productive and effective.

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  • Employee groups are becoming heterogeneous. 
  • Standard blanket homogenous rewards and benefit offerings are no longer ideal for employees.
  • Employees have started to prefer organisations that offer a basket of reward options based on their individual preferences. 
  • This includes offerings that support their healthcare, lifestyle, wellbeing, learning priorities such as gym memberships, cafeteria options, skill addition opportunities etc.

 

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The essence of empowerment

At its core, empowerment is about giving employees control over how they carry out their roles.

  • It's not uncommon for businesses to require employees to complete processes that have been developed exclusively by their managers. When that’s the culture, that is not an environment of empowerment.
  • When companies empower employees, there’s suddenly a fresh voice in refining systems and optimizing outcomes, and the focus of management moves from overseeing tasks to defining goals and staying focused on results.

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