Perhaps it's time to scrap the existing incentive or bonus plan and create one that really motivates employees to stretch further and accomplish key corporate goals.

Most employers reward employees for completing projects or meeting specific goals, or to otherwise show appreciation, and it is no surprise that money is the easiest incentive for owners to use. What's startling is that monetary incentives may not be as effective as other types in motivating workers. In fact, many employees prefer simple perks such as personal time off, gym memberships and gift certificates. Perhaps it's time to scrap the existing incentive or bonus plan and create one that really motivates employees to stretch further and accomplish key corporate goals.

Where's My Bonus?
Using money as an incentive is attractive for two primary reasons:

1) Money is an easy reward and

2) Employers believe their staff is always seeking another, higher-paying job. But is additional money what employees really desire?

Consistently using monetary incentives actually results in a disincentive over time. In some ways, it becomes like an entitlement. The Christmas bonus is one example. Employees expect this reward and rarely feel they have to do anything special to earn it. An additional problem occurs when monetary incentives are included with employee paychecks. The drawback here is because most paychecks are deposited into the household account and not given directly to the employee, the employee doesn't feel like he or she really benefited from the bonus.

Instead, reward money becomes just part of the usual pay, which can leave the employee feeling cheated or unappreciated.

Incentives need not necessarily be monetary. In most industries, employees also are motivated by personal time off or specific items of interest. For example, one U.S. construction manager hung a shotgun in the shop and announced that whoever had the greatest improvement in productivity over a specified amount of time would win the shotgun. Overall, this shop experienced a 35 percent productivity improvement, while the shotgun merely cost $300. Sure, most of the employees could easily purchase this item on their own. Yet, given the chance to win it plus earn the recognition of peers, they were inspired to work harder.

Peer recognition is another important consideration when it comes to incentives and motivation. Unfortunately, it is lacking in most businesses today. Many owners are quick to criticize and tell employees what they did wrong. It's not as common to pat someone on the back and tell them they did a great job, especially in front of other employees. Yet verbal recognition or even a simple plaque works wonders and generates a truly positive response from employees simply because they were recognized for a job well done.

Performance Management
The solution to how and when to reward employees comes from an incentive philosophy based on individual or team performance. This approach empowers employees and enables them to influence their income or other forms of job satisfaction by performing job tasks in a more efficient manner.

Incentives can be based on productivity or other company drivers and ratios important to the business. Then, if two employees are hired at the same time to do the same job but one is 50 percent more productive than the other, it's easy to determine which employee will receive a bigger bonus or incentive. That employee actually influenced his income rather than getting the same pay as the others.

Another example of an earned incentive is when employees complete a job or task in less than the allotted hours. For example, if the bid for a particular job was for 50 hours and the job was completed in 40, there are 10 remaining hours of "profit." Share this with the employees. Let the manager decide how to divvy up the staff's distribution based on each employee's contribution.

Also, include the inside staff when they support the team effort. Devise incentives that relate to their jobs, as well.

An electrical company decided to implement an incentive to enable employees to have more input into the amount of money they could earn. This company used two-person teams consisting of a journeyman and a helper to complete jobs. In the past, each employee was paid hourly. It was known that the helpers were fun to have around even if they didn't usually work very hard.

Then the company changed the system so that the journeyman was paid per job. In this way, the journeyman could influence his pay by how fast the job was completed. Suddenly, half of the journeymen began complaining their helpers were not very capable and couldn't get their work completed fast enough. They soon realized they could earn more money with a more skilled helper.

The Nature of Goals
For incentives to be successful, the outcomes must be measurable using ratios that work for each particular employer and industry. One owner may use the number of feet of pipe that is laid, while another may use the average billing rate per hour. Additionally, the employer and employee need to agree on the goal. It should not be set too high or be too unrealistic; otherwise, employees will never even try to achieve it.

Likewise, the goal cannot be set too low because then it's too easy and not meaningful.

Instead, set a stretch goal where employees need to work to reach it - one that's not unreasonable, but will take some effort to get there. Provide feedback to the employees to keep them motivated as they progress toward earning the goal. A good plan should be easy to understand, implement, follow and measure for both the employees and employer.

Incentive Plan Benefits
A well-crafted incentive plan provides multiple benefits to a work place - more so than what is ever achieved by the annual Christmas bonus. Benefits include improved employee morale, reduced turnover, enhanced productivity, better customer loyalty, cultivation of a team atmosphere, employee ownership of jobs/projects and a greater sense of responsibility to work productively and proficiently.

Additionally, incentives can be used for other areas of the workplace such as increasing attendance, promoting safety and raising quality.

From the employer's perspective, a performance-oriented monetary incentive plan represents the best check an employer can write. This check is issued because of the achievement of a specified goal attained above a predetermined amount. This target is the minimum of what the employer and employee wanted to reach - above and beyond is gravy. This amount is shared with those employees who participated in reaching this goal, making it a rewarding check to write.

The Changing Face of Compensation
The need for incentives has changed over the last decade. The workplace has become more competitive, and employees expect more. Increasing expectations coupled with the emergence of a new generation in the work force means the work ethic is changing - a fact that owners cannot ignore.

More than ever before, increasing numbers of employees believe incentives should really be entitlements, given to them like the traditional Christmas bonuses. In reality, employers do not and should not be expected to pay employees for the jobs they are already getting paid to do. Monetary and other incentives tied to productivity allow employees to influence their own income and/or job satisfaction without really costing the owner anything additional. Sometimes the little things make all the difference in creating an incentive plan that benefits both the employees and the employers, instead of one that drains the company's resources.   VTR_US

Richard Fineman is a consulting services director for International Profit Associates and Integrated Business Analysis (IPA-IBA). IPA and its related companies provide business consulting, tax planning and business valuation services to companies in the United States and Canada. For more information, call 847-495-6786 or visit www.ipa-iba.com.