How To Implement An Incentive System Correctly?

An incentive is a mechanism that relates a reward or punishment to a specific performance or behavior.

The objective of establishing an incentive is to induce a specific behavior. It is assumed that the subject to whom it is applied will act as a rational agent evaluating costs and benefits.

Therefore, the target subject will consider it optimal to develop the behavior sought by the designer of the incentive, provided that the stimulus is well designed.

Different incentives can be used to motivate workers. Some of the most commonly used are described below:

Profit-sharing: Allowing workers to obtain a share of the company’s profits for a certain period. In this way, if the company does well, so do the workers.

  • Project bonus: Awarded to a team or a particular worker when the objectives of a specific project are achieved.
  • Stock options: Workers are allowed to buy company stock at a fixed payment regardless of the current stock market price. Holding shares would push them to increase the value of the company.
  • Sales commission: The employee is allowed to keep a percentage of the sales they achieve.

An incentive scheme is a motivational tool that seeks to align the interests of workers with those of the company.

The incentive scheme should then allow the company to better achieve its objectives. This, through making workers exceed the expectations of their position and promote the growth of the firm.

the incentive scheme must comply with specific essential characteristics:

  • Clear objectives: clearly establish the goals and the time they are to be achieved (short, medium, or long term). Also, it must be defined whether the goals are objective or subjective, that is, whether they are observable (e.g., sales) or estimated (e.g., involvement with teamwork).
  • Determine the budget: Define the number of resources allocated to the incentive scheme (including implementation costs and rewards).
  • Establish units and points of measurement: The unit of measurement of the objective must be defined (money, units, hours, etc.) and how often it will be measured (monthly, semi-annually, annually, etc.).
  • Flexibility: It is necessary to allow flexibility in the awards and measurements because the objectives may change over time. Thus, in the first year, it may be more important to focus on product launch, while in subsequent years, it may be to control delinquency or expand markets, etc.
  • Transparency: Employees should be fully informed of the objectives set and how much they can achieve if they make an effort.
  • Equality: It is good that no differences are made between workers, and all face the same conditions. Otherwise, rivalries and envy are generated that limit healthy competition.

An incentive management platform is an HR-oriented solution. The implementation of an incentive management platform is obviously more expensive than the implementation of an Excel spreadsheet. Still, this type of software is designed to manage payroll issues as a whole, from the issuance of the payroll sheet to the payment order. Therefore, the choice of the kind of application and its environment is paramount. This type of software will be helpful if it can adapt to your company, integrating each of the specific functionalities you need.

Make sure that it manages the criteria intrinsic to the characteristics of your sector of activity, the collective agreements, the different categories of employees. Most applications have incorporated simple solutions that are adapted to the challenges and problems of HR.

Specialized companies offer complete solutions for managing your incentive plans to provide an adequate response to your needs in terms of calculation and communication by integrating the elements involved in the variable remuneration of your teams. These tailor-made tools offer the ultimate in terms of analysis processes for your incentive systems. They are a compelling solution to convey your motivation strategy through your incentive/variable compensation plan. These companies’ audit and consulting functions are additional benefits that give an added value to these leading solutions.

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