Incentive plans are part of an employee's compensation or pay. The incentive plan gives an employee the opportunity to increase his annual pay based upon either company performance or individual performance. Incentive plans are a way for companies to keep employees motivated to perform to the best of their abilities, thus increasing company profit. Effective Incentive Compensation Plan
A successful incentive compensation plan focuses on achieving company goals by driving the right behaviors in employees. One of the biggest failures of incentive compensation programs is they often do not take into account all the key drivers that will make the company successful. How does a company determine if its incentive plan is effective? If the answer is “no” to any of the following questions, chances are the company is not getting the most benefit out of its plan. Following are guidelines for creating an effective incentive plan. Develop a Strategic Plan
Developing and communicating a formal strategic plan creates a unified direction for the company that provides a platform for performance expectations, decision-making and personnel development. Develop Best Practices
The second step is to develop and implement standard best practices within the business. Developing best practices establishes expectations for all positions in the company and enables management to hold employees accountable for their performance. Determine Shareholders’ Required Return on Investment
Company performance standards must be met before any individual bonuses are paid. Employees work for a company and are paid a salary to carry out their job responsibilities. The expectation is if everyone performs up to certain standards, the company will be profitable. Create, Implement and Communicate the Incentive Compensation Plan Benchmark how other companies are paying base and incentive compensation to their employees. The starting point for creating an incentive plan is to compare the...
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