Performance incentives encourage higher performance among your employees by offering rewards (either cash or non-cash) for achieving pre-defined performance measures (such as sales targets).
While there is some overlap, bonuses differ from performance incentives in that bonuses cover a wider range of purposes (eg variable pay, company performance), can be both discretionary and non-discretionary, and tend to be more retrospective in nature. Performance incentives are forward-looking and KPI-based, and aim to engage employees in a way that neither bonuses nor commission can.
The reasons that companies run performance incentives programmes include-
1. Aligning Employees with Company Objectives
Performance Incentives can even serve to clarify a company’s objectives, and effectively break them down into individual KPIs. By doing this, they can also help to identify skills gaps and training opportunities..
2. Engaging and Motivating Employees
Because performance incentives include gamification, rewards and recognition, as well as having open and transparent targets, they can be highly engaging for employees.
"Performance incentives are forward-looking and KPI-based, and aim to engage employees in a way that neither bonuses nor commission can."
3. Developing a High-Performance Culture
Incentive programmes deliberately set-out to identify and reward performance. By so doing, these programmes re-enforce performance behaviours that develop a culture of achievement and of celebrating success.
4. Positive Communications
Performance Incentives generate frequent opportunities for positive communications about employee performance.
5. Promoting Teamwork
In addition to individual performance, team incentives can be very powerful in making individuals accountable for team performance.
6. Measureable ROI
Because all performance criteria must be specified in advance, performance incentives are normally highly measureable, making for easy and accurate ROI calculations.
7. Tax Efficient
Performance incentives can often be used in combination with tax-breaks on employee rewards (such as the €500 Small Benefit Scheme in Ireland) to make the programme tax-efficient.
Types of Performance Incentive Programmes
Because you can’t have a performance incentive without performance measurement, it is no surprise that the most common use for performance incentives is sales incentives - because of course the one thing that all companies measure is sales! However, performance incentives are now being used across other business functions. Non-sales performance criteria that are commonly found in incentives programmes include-
- Productivity KPIs
- Customer Reviews
- Business Referrals
- New Employee Referrals
- Health & Safety Measures
- Compliance Goals
- Suggestion Schemes
- Employee of the Month
- What performance criteria do we want to improve?
- Can we easily measure these criteria?
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