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How to Structure Your Incentive Programs for Maximum Effectiveness

Employers routinely establish incentive programs in order to motivate employees to improve production and generate better results. But not all incentive programs are equally effective.

Moreover, it can be complicated formulating incentive programs. Options abound, including bonuses, commissions, profit sharing, prizes, trophies, travel, extra time off, merchandise, and more. Incentives can then be offered under a variety of circumstances, including individual productivity achievements, team productivity, spot awards for specific accomplishments, staying with the company for a certain amount of time, completion of special projects, and so on.

The truth is, there’s no one right way to offer incentives. Any incentive program should begin with a survey of employees to determine what kind of rewards they will value the most. The answers can be surprising: many workers favor nontraditional incentives. Nearly two-thirds (65%) of respondents to a survey by the Incentive Marketing Association said that they prefer non-cash incentives.

Researchers have also looked at the question of incentive programs. The International Society of Performance Improvement reviewed dozens of studies on incentive programs in a “meta-analysis” and found that incentives can improve employee performance by up to 44% if well-designed.

But what does that mean? The meta-analysis isolated five factors crucial to effective incentive programs:

  1. Current performance is inadequate.
  2. The cause of the inadequate performance is related to deficiencies in motivation.
  3. The desired performance type and level can be quantified.
  4. The goal is challenging but achievable.
  5. The focus on promoting a particular behavior does not conflict with or override everyday organizational goals.

That second point is particularly key. If the lag in productivity is unrelated to motivation, an incentive program will only help a little, or not at all. Instead, employers need to look for other underlying issues to resolve. Perhaps the goal is unachievable (condition #4 above), creating a setup-to-fail scenario. Or perhaps some kind of bureaucratic or procedural barrier constrains performance.

Ultimately, incentives works best when the employee just needs a little extra encouragement to push themselves that much harder.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with payroll, HR administration, benefits, and compliance. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.