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6 Types of Employee Incentive Plans You Should Know About

April 13, 2015

Employee incentive programs can empower employees and management. They can create a team culture that thrives on cooperation and pride. And ultimately, they can boost productivity and profits. But before incentive programs can do any of these things, they must be thoughtfully planned and carefully implemented. And the best way to put those wheels in motion is to first understand plan types. For instance, did you know that employee incentive plans can typically be categorized as short- and long-term? And that each plan can impact a different part of your organization and contribute to your company’s success in different ways? It’s true. So let’s take a quick look at these incentive plan types and their differences:

Short-term Plans

Short-term employee incentive plans are typically in place for one year or less. Here are five types of short-term incentive programs to consider for your organization:

Goal Sharing:

A Goal Sharing incentive plan focuses on business unit performance while rewarding participants for achieving continuous improvement results. This type of program typically takes a balanced scorecard approach with goals to improve processes, financial performance, quality, customer satisfaction, and growth.

Gain Sharing:

A Gain Sharing incentive plan shares financial gain only. Typically there are no measurements other than financial. While this is considered a short-term plan in that it exists within the context of a fiscal reporting year, a Gain Sharing plan can typically remain in place for many years once installed.

Management Bonus Program:

A Management Bonus Program is typically designed for management employees as well as some high-level individual contributors. This type of plan includes financial parameters and individual objectives, and may also include leadership objectives or other discretionary components. Those employees covered under a Management Bonus Program are typically eligible for a percent of pay based on their level in the organization.

Customer Contact Incentive Plans:

Commonly applying to personnel in corporate call centers, a Customer Contact Incentive Plan can encourage quick call handling, as well as quality results, call availability time, etc. This type of plan usually pays on results monthly.

Sales Compensation Plans:

Sales Compensation Plans, naturally, are typically designed for sales-focused employees. They can include incentives for direct sales personnel, as well as inside sales staff and technical consultants supporting direct sales employees. Sales Compensation Plans align very closely with sales performance results and typically include goals for customer retention, customer growth, profitability, sales growth, and specific product- or service-based sales objectives.

Long-Term Plans

Long-term employee incentive plans are normally in place for about three years. They are usually designed for senior management or very high-level individual contributors who can significantly drive business results. Long-term incentive programs typically include stock plans and cash plans. Stock plans feature awards in the form of company stock which vests at a certain percentage each year. Cash plans, on the other hand, might start out with a lower cash payout in the first year, and then escalate to the largest cash payout in the final plan year.

Bottom Line:

The types of employee incentive plans your company should implement can depend on many factors. Whether you eventually put in motion short-term or long-term plans, they should be carefully designed for maximum applicability to your organizational structure, growth goals and employee types. Employee incentive programs can be simple to categorize, but difficult to design, implement and manage. If you need help determining which types of employee incentive plans are best for your company, contact me today at 317.589.8529. I’ll be glad to discuss your corporate success goals and how to achieve them through incentive programs.

Posted Under: Incentive Compensation