Incentive Management


What is incentive management?

Incentive management is the motivating programs used in organizations to improve employees performance by encouraging specific actions.

Organizations set goals related to employee performance, health, safety or sales and offer a variety of financial and non-financial rewards for the successful achievement of those goals.

The goal of incentive management is to keep employees motivated and happy while working hard to achieve organizational goals, reduce turnover, and increase productivity.

Any metric that can be tracked and evaluated can be used as a goal. Incentives tend to be financially based, although more and more, companies are finding that non-financial incentives can be just as motivating for their workforces. Performance bonuses, stock options, days off, company retreats, gym memberships and in-house massages are all examples of incentives that could be offered to top performers.

What is incentive management in practice?

It is a management strategy that includes the tracking of performance, the analyzing of metrics, and the rewarding of staff. Many studies have shown that good incentive management leads to happier employees. Happier employees tend to be more productive, stay longer in the company and are overall assets to the organization.

How to build a great incentive management program

To build a great incentive management program, an organization should follow a basic, three-step program:

  • Involve the proper departments
  • Examine the program fully
  • Create and roll out the program

1. Involve the proper departments

There are three main departments that will be involved in any incentive management program: Management, Finance and Human Resources.

  1. These departments should meet and contribute their expertise to build the parameters of the program.
  2. Management will provide the metrics and goals of the program.
  3. HR will develop the compensation ranges by analyzing market data;
  4. Finance will ensure that the program can be paid for, or offer alternative compensation rates.

Together these three departments will synthesize the basic parameters for the incentive management program, tailored specifically for the organization. It is important to not use previous plans brought in from other organizations, as they are likely to not be as effective.

2. Examine the program fully

As the outline of the program is created and the broad payment parameters are approved, there now are many more questions that need to be answered about how the program will be running.

  • What is the organization trying to achieve with this program?
  • In what ways will this program help the organization achieve that?
  • Which staff members will be eligible for this program?
  • What payouts are available for overachievers?
  • Will there be a maximum payout?
  • What payouts are available for those who do not meet their goal?
  • Will there be a minimum payout?
  • How will this program be paid for?
  • Are the objectives clear and in SMART goal format?

There may be other questions specific to the incentive management program or the organization, but these are good questions to start with. Examine the program from all angles before launching to avoid problems during the initial rollout.

3. Create and roll out the program

Once the questions above have been thoroughly answered and approved by the three stakeholder departments, the program is ready to be designed.

  1. Set the main goals and subgoals.
  2. Determine the metrics for performance and if over and underachievers will be eligible for adjusted incentives, as well as set minimum and maximum payouts.
  3. Create and test the formula for payment.
  4. Set the calendar for incentive payouts.
  5. Establish who is the final authority for approval of incentives.

The complete terms and conditions should be laid out, including who is eligible, what the objectives are, and there should be a clear roadmap of the performance assessment process.

The goal of this document is to ensure that employees are left with no unanswered questions about this program.

Once that is complete, the incentive management program can be launched. A company or team-wide meeting to introduce employees to the program can be a great way to answer questions and drum up excitement.

Examples of incentive management

A good incentive management program should take into account what the employees of that particular organization are likely to want.

A younger workforce might enjoy escape rooms, paintball outings and adventure vacations, while an older workforce might be more comfortable with stock options.

Asking employees for suggestions is one way to find out what your workforce wants, but most organizations find that offering a selection of financial and non-financial incentives works best.

Examples of incentive management include:

  • Stock options
  • Pay raises
  • Spot awards
  • Project bonuses
  • Recognition
  • Free vacations
  • Days off
  • Working from home
  • Gain sharing
  • Off-site team activities
  • Employee development

Let’s take a look at some of these incentive management examples in action:

  • Google offers many incentives, from free in-house childcare to gourmet food. They also take care of their employees’ families. If a US employee dies, their spouse or partner gets 50% of their salary for the next ten years.
  • Intel offers a $50,000 tuition reimbursement, and paid sabbaticals every seven years.
  • Ultimate Software gives employees free vacations every two years.
  • NetApp’s employees get a thank you call from the Vice Chairman when they do great work.

GoDaddy takes employees off-site for activities every month, doing things like cooking classes and whitewater rafting.

Benefits of incentive management

Many businesses have found that good incentive management offers many benefits. Organizations who do not offer a good, or any, incentive management program have higher turnover, disengaged employees and lower productivity.

Even offering just once a year financial incentives is not enough to keep employees engaged – financial incentives usually only motivate employees for three months. Organizations who integrate incentive management into their company structure, offering a variety of incentives, find that they reap the full benefits of incentive management.

So, what are the true benefits of incentive management?

1. Motivation

Employees who feel appreciated and valued will work harder, especially if they see that there are concrete rewards for doing so. Seeing colleagues rewarded also drives motivation. A self-motivated staff leads to a happier management team, as well.

2. Loyalty

Employees will feel loyal to an organization that treats them well and will be engaged and hard working long term. Incentives that offer motivation for them to curate long-term relationships with clients can also drive loyalty.

3. Reduced turnover

It seems obvious that happy, valued employees won’t look elsewhere for work, but many companies overlook this aspect and do not offer enough incentives. The incentives, in this case, pay for themselves, as the cost of replacing employees is high.

4. Increased collaboration

Good incentive management does not pit employees against each other but instead rewards good teamwork. Using team and project incentives will drive collaboration, innovation and build a harmonious team.

5. Increased productivity, earnings, and safety

This is why incentive management is worth it. You want to build an organization that is successful and productive and having loyal, motivated employees are how you get there.

What is enterprise incentive management software?

Enterprise incentive management (EIM) is a software solution for incentive management. The basic functions of EIM are the management of incentive programs and the calculation of compensation. EIM can also provide rollout of new incentives, in-depth data analysis, delivery of pertinent information to salespeople, manage sales competitions between various teams and deliver timely, error-free commission reports.

Employee incentive management can be an onerous task, requiring several departments to input data. Implementing an EIM can cut down that process dramatically, as well as centralize operations to better map data, plan future incentives and highlight top performers. Especially for large companies, implementing EIM can be an effective cost-cutting solution.