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By: Jennifer Maughan

Several types of incentive plans evolved when companies realized that employees were motivated by
more than just a paycheck. While compensation incentive plans continue to be some of the most
popular and effective workplace motivators, employers use several types of incentive plans to keep
morale high, reward workers for good effort and meet business goals.


 This type of incentive plan is implemented when a company puts a percentage of
profits into a trust to be distributed to employees annually. The idea is that, if the employees work
hard to make the company profitable, their profit sharing bonus is bigger.
 Brings employee and company goals together.
 Employees may put profitability over quality or long-term benefits.

 These financial bonuses are based on an annual performance review, and if
certain objectives are met, the employee is rewarded. This can be structured to fit the employee's
needs perfectly and allows an employee to benefit from personal hard work instead of relying on
others for bonuses.
Tailored to individual needs.
 Employees may put themselves ahead of the company to look good for reviews.

 This incentive plan uses rewards other than money when a group, team or
individual achieves certain goals within the business. Vacations, merchandise, additional paid leave
and more can be used to motivate employees to reach short-term goals.
 Can be structured to fit every scenario and tailored to employee interest.
 Difficult to find rewards to fit every preference or situation and ultimately may not be enough
motivation.


 

 Similar to profit sharing but much more involved, stock options as an incentive plan
are ideal for those seeking long-term involvement in a company. With stock options, an employee
must meet certain qualifications in order to purchase company stock at a set price. The appealing part
is that, when the stock rises, the value goes up. If the stock drops, the employee's options lose value.
Employees feel more connected to the company's success or failure.
If the stock options become worthless, employee motivation and incentive evaporates

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Bonuses
‘ A bonus incentive plan is go od for individuals. With a bonus, an employer offers
employees a one time payment of a specific amount. The amount of the bonus is typically
unknown to the employee or employer, and is determined when the outcome is achieved.
For instance, some bonuses are awarded based on the amount of sales that the team or
individual makes at the time the bonus is rewarded. Bonuses reward the individuals for
reaching a goal, quota or other type of achievement within the organization. A bonus is
generally awarded once a y ear, or when a client of the employer is offering bonuses to reach
a goal. The time the bonus is awarded varies by employer, but most bonuses are given out
around the holiday season.

=ommission
‘ Commission is another type of incentive plan for employees . Some employers base
wages on commission, while others give out commission on top of an employee's regular
wage. The amount of the commission is determined by the organization. The way
commission works is the individual or team sales a product or service, signs a new client,
collects on debt or other methods and are then rewarded a percentage of that amount. For
example, if a sales team collects $11,000 from a debtor on an unpaid student loan, once the
debtor has paid the loan as agreed, the employer will pay the employee a percentage of the
loan collected. Commission, unlike a bonus or regular wage, can be paid more than once a
year, but not every pay period.

÷ ofit Sha ing

‘ Profit sharing is a good incentive for teams. Profit sharing is when employers award a
percentage of pre -tax profits into a pool. The profits in the pool are then distributed to the
eligible employees. The amounts.however, are based on an employee's salary, which
means those employees that have higher wages will earn a larger amount of the shared pool
of profits. The profit sharing method has pros and cons. The method brings employees
together to work more as a team, and enhances employee's commitment to organizational
goals. However, employees can become obsessed with focusing on the goal of profitability,
which can lead to poor quality in products and services

hift Incentives
‘ A popular incentive used in organizations these days are gifts. These can be small gifts
prepared by a company, like T -shirts, cakes on special occasions, c ards and flowers to
celebrate employee birthdays, cookies for kids etc. Such incentives can be awarded to all
employees to motivate them, or to specific employees in appreciation of their performance.

Bonus Incentives
‘ Bonuses are offered to individuals when they are able to reach specific goals. For
example, in companies that are involved in sales of products and services, bonuses are
often awarded on the basis of sales made by the individual. This incenti ve depends on the
performance of the employee and is usually paid in cash. The bonus increases and
decreases according to the individuals¶ performance. Bonuses are usually offered once a
year, however the frequency varies from company to company.

üealth ca e Incentive
‘ One of the most important incentives for employees are the health care facilities. Such an
incentive is also important for the employer, as healthier employees will increase
productivity. Organizations offer personal insurance, maternity and child -care cost as
incentives. Most companies will insure the family members of an employee, including her
spouse and children.

c avel and c anspo t Incentive

‘ Travel incentives are popular; they help the employee relax without any financial concerns
during the holiday. S uch rewards are appreciated by the employee as well as his family.
Travel incentives, can include local destinations or travel abroad depending on the employee
performance and position in the company. It can either be a weekend trip or a long vacation.
Transportation is a highly valued incentive and employees are often rewarded with company
maintained cars. This makes traveling convenient and saves travel time.

=ommission Incentive
‘ Another type of incentive is commission. In some organizations salaries are based on a
flat wage plus a commission. While for other jobs, the only payment might be made in the
form of commissions. The amount usually depends on the number of sales a team or
individual completes. For example, in a call center, agents are offered commission on the
completion of an order alongside their regular wage to further motivate them to increase
sales performance.

÷ ofit-sha ing Incentive

‘ Another common incentive utilized by organizations is profit sharing. This is an effective
form of incentive for group motivation. In profit sharing, employees are offered a percentage
of profits. The distribution amount depends on the salary of employees or the predetermined
share of profit that they are entitled to receive.

¢eti ement Incentive

‘ One of the most popular incentives today is the retirement benefit contribution by the
company. In such an incentive plan, the company deposits money in an employee¶s
retirement account. This has an added advantage as employee gets tax -free or tax-deferred
savings. This amount increases to a large amount at the time of retirement and helps the
employee pay daily bills after retirement. This incentive is effective and is usually offered to
all employees.

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