You need sound structures to underpin your incentive schemes. You also need good administrative back up. Your actual incentives may be very attractive. That’s not enough. You need to get the basics right before you start.
1. Measurable Performance Standard
Have crystal clear performance standards. Eliminate ambiguity. Use incentives only where measurable performance standards exist. The link between actual performance and incentives must be obvious, especially to the employees who’ll benefit from the incentives.
Any performance that you can’t or don’t want to measure, shouldn’t attract incentives.
2. Achievable Objectives
Use achievable objectives. B23 Objectives that are virtually impossible to attain kill incentive schemes. You determine what you’ll reward with incentives. Have your staff participate in setting objectives and performance standards within the framework you’ve already determined.
Staff should be able to influence the work that attracts the incentives. If the staff have no influence, incentives may prove unworkable.
3. Make Progress Clear
Structure your incentive/reward scheme so that staff know exactly how they’re progressing in achieving their incentive rewards. Provide the information as frequently as possible: at least weekly and hourly if you can depending on the nature of the business.
You should also show actual records in the areas rewarded by incentives e.g. sales, net profit, customer complaints, referrals, or whatever.
Reinforce use and value of incentives by public celebration of success of your scheme. Use highly visible award ceremonies.
4. Reward All Superior Performance
Any salesperson who gets 20% over budget should be rewarded whether their sales budget is $250,000 or $500,000. Both results are 20% above expectation. Reward any individual or group who betters “budget” or “target”.
Once staff reach “budget” or “target” be prepared to give them proportionally more of their over budget figure. For instance, you may pay various incentives averaging at 7% overall. Once budget’s obtained in each area pay a greater percentage on over budget sales.
If you pay commission only, use a “more you sell, more you get” approach. You might pay 10% commission of the first $100,000 worth of sales, 15% on next $100,000, 20% on next $50,000, 40% on next $50,000 depending on the product or service and your margins.
Stick to your scheme with absolute integrity. Make adjustments only after consultation and explanation. Build specific review times into your scheme. Always keep your promises.Make sure that the records are always open for inspection and that your behaviour is always beyond reproach.
Incentives usually fail because of poor structure rather than poor monetary or other actual rewards. Make them measurable, open, fair and available to all. And engage your staff in their design.