Laying Out the Plan for Incentive Plans

An incentive plans is the structured provision of monetary incentives to employees of the company as a means of rewarding them. It is an additional monetary allotment for employees that they expect to receive on a fixed schedule outside of the regular salaries employees receive. One example of incentive plans is the implementation of profit sharing schemes.

It is important that incentive plans are designed and implemented carefully, since ineffective incentive plans can backfire and cause damage to the company or organization. Sometimes, incentive plans are too complicated, and when incentive plans are too complicated, there are just too many ways to go around that the execution is seldom uniform. This results in numerous complaints regarding inconsistency and the possible attitude of the employee that this was designed knowingly to confuse employees and deprive them of incentive merits. It presents a false hope that there is an incentive plan laid out to reward company employees who are performing very well.

When an incentive plan becomes ineffective or useless, it automatically makes its presence felt among the employees immediately, resulting in confusion over incentive metrics and rewards scheme. It also causes confusion on the part of the employee, who does not know how he or she got what and why, and confusion over what is incentive and what is work pay. A complicated incentive plan is just one of the many reasons for the ineffectiveness of incentive plans and the failure to implement them properly.

After accepting this reality, a company should take a step back and reassess not just its incentive plan, but also the manner by which the faulty and ineffective incentive plan was created, designed and implemented in the first place.

Some considerations that company decision-makers should remember are to keep the incentive plans simple and in line with at least one key performance indicator (KPI). Incentive plans should also try to involve as many employees in the company as possible for it to be effective and useful.