Personnel e.bulletin – August 2016
Finding the Right Incentives for Your Employees
Prepared for the PHCC Educational Foundation by TPO, Inc.
Incentives can be a boon for your company. If they are tied to company goals and are designed and delivered effectively, they can increase company success, as well as employee satisfaction and retention. Good incentive programs encourage the employee behaviors you want; bad programs can do more harm than good. Incentive program design and implementation is serious business, and requires time and effort. This article outlines planning process considerations and offers suggestions from a couple of experts. Beth A. Dobkin, a business coach with Quality Service Contractors, and Lawrence Snow, president of Valley Plumbing and Drain Cleaning, provided key insights into implementing incentive programs that can motivate employees and help you reach business goals.
Tips for Designing an Incentive Program
There are a number of important considerations in designing an effective incentive program.
1. Establish an annual set of criteria that is most important to your business, then identify the goals and behaviors you want to support through the incentive program.
Start by identifying behaviors that enhance the value of your business and support the achievement of established company goals. These are of the basis of your incentive program.
It’s important that you establish goals and communicate them to your employees so that you end up rewarding the behaviors that support those goals. Dobkin emphasized that an incentive program must be connected to company culture – without a connection to a central belief system, there’s no employee buy-in.
Also, without that clear connection, it’s easy to fall into the trap of supporting counter-productive behaviors. Dobkin gave the example of a plumbing company that promotes a customer-first culture. If that company has an incentive program that conditions a bonus on increased sales – and only increased sales – that core value can be lost, because an employee may want to sell customers something they don’t need. That company could still create an incentive program that focuses on increased sales, but it could instead encourage employees to offer customers three potential choices, which would likely increase sales but also educate customers and give them more options.
2. Determine specific performance standards and measurements.
Dobkin highlighted the importance of establishing specific performance standards and measures—key performance indicators (KPIs)—for the desired employee behaviors. She offered the following examples of KPIs:
- Home inspection completion rate
- Add-on sales percentage
- Efficiency rate
- Truck preparedness
3. Clearly communicate the program to employees, and do it in writing
This involves first making clear the connection between the company’s goals and the incentive program. Dobkin stressed that there will be more employee buy-in if employees understand that connection. For example, if you want to promote premium customer service, communicate how the encouraged behaviors benefit both customers and the company.
Communicate the goals and rules of the incentive program in writing so everyone is officially aware, and both you and your employees are held accountable for following through. This will increase employee trust and performance under the program.
4. Make the program fair.
Lawrence Snow said you must make the incentive program fair to everyone so both lower and higher performers have the opportunity to achieve something if they want work for it. His favorite incentive programs don’t have winners or losers, but rather focus on plateaus – so employees receive specific rewards for reaching each level of performance. You can keep a program fair by emphasizing individual targets.
Dobkin said you can’t assume everyone has the same capabilities, similarly suggesting that employers base rewards on individual performance. She cited the example of conditioning a bonus on an employee accomplishing a specific percentage improvement over their past performance. For example, if the same benchmark of $30,000 in sales is used for all employees, those who haven’t ever reached $20,000 in sales previously will likely be discouraged and not commit to even attempting to reach that target. But if the goal is to increase individual sales by 5 or 10 percent, any employee can be in the running for a reward and will be encouraged to pursue it.
5. Get creative!
Snow and Dobkin talked about the value of variety in rewards to keep employees engaged. Dobkin said the companies that are most successful with incentive programs switch things up continuously, for example, refocusing programs quarterly, or changing a portion of the program each month. Of course, it’s important to be transparent in communicating with your employees each time you tweak an incentive program.
Dobkin talked about the exception to this rule: incentives that will always work well, based on the profitability of the item being sold. For example, plumbing technicians might test the water while on job sites, and separate from original jobs, sell customers water treatment systems when hard water is discovered. Those sales are the right thing for both the customer and company. Incentives for such sales also represent a way for lower-achieving employees to receive a reward.
6. Integrate small, incremental rewards.
Dobkin and Snow both emphasized that short-term, smaller rewards are more effective than longer-term, larger rewards. Snow said that with a high performance threshold mandated for awarding a big vacation at the end of the year, the same employees might always win, so other employees would be discouraged from trying to reach that goal. Dobkin said employees want immediate gratification and the end of a year is too far away. You want the incentives to be fresh in your employees’ minds.
7. Make sure the incentive program has specific thresholds before employees are in the running for the incentive.
Dobkin said that it’s necessary to set a base level of KPIs for employees to qualify for the incentive program, and then you can set further performance goals. That way, an employee who is rewarded does the basic job correctly and then goes above and beyond. For example, for employees to qualify for a $500 bonus for increasing sales, they must be on time to work, must have a specific close percentage on jobs, and can have no more than one call back. If employees meet those three qualifiers, they can be in the running for the bonus.
8. Share results, and do so frequently.
Post results so everyone knows how they are doing at all times, and has the chance to improve their standing. Snow suggested using technology – employees could be involved in a text messaging group, for example, and you could send out a text when an employee hits a target. He also mentioned that time cards could be color coded to reflect how well employees are meeting their targets.
Snow suggested if possible, hold weekly meetings to share success and address opportunities, augmenting meetings by posting results on a whiteboard, updating where different employees stand. If you don’t follow up with employees consistently, they won’t reach targets because they’ll forget about the program.
Dobkin likewise talked about the importance of sharing results so that employees know where they stand, can encourage one another, and are motivated to improve. This results tracking is also crucial for managers, who need to be aware of what employees are accomplishing so they can coach and provide resources and support.
9. Keep your commitments.
You’ve clearly communicated the program to your employees, so don’t go back on that commitment. Dobkin said employers should set the bar at the beginning of the program, and stick to the benchmarks, otherwise employees will be defeated before they even start. There is a history of distrust of employers regarding incentive programs, because they often don’t communicate the programs well, or are perceived not to follow the program rules. Since part of the goal of incentive programs is to increase employee satisfaction and retention, that’s counterproductive.
Remember to do the following when designing and delivering incentive programs:
- Make sure you encourage the right behaviors
- Keep differing employee capabilities in mind
- Connect the program to your company’s culture and communicate that connection
- Make the goals and rules clear (and write them down)
- Measure results precisely
- Frequently present the results to employees
Do this and you’re more likely to create an incentive program that accomplishes the objectives, cited by Dobkin: promoting company culture, reinforcing employee performance standards, supporting business growth, and encouraging the entire team to succeed!
This content was developed for the PHCC Educational Foundation by TPO, Inc. (www.tpo-inc.com). Please consult your HR professional or attorney for further advice, as laws may differ in each state. Laws continue to evolve; the information presented is as of July 2016. Any omission or inclusion of incorrect data is unintentional. Please note this article is not intended to provide legal advice or to substitute for supervisor employment law training.