Situations To Be Aware of When Distributing Incentives for Employees

by on June 19, 2009 · 0 Comment POSTED IN: HR Info Center

Things to consider when designing and managing incentives for employees

  • Don’t be afraid of using discretion. A lot of times people who are just starting to become acquainted with how their company handles incentives for employees try to measure everything under the sun. And there are very few jobs where you can measure a particular individual’s performance 100%, very few jobs. There are lots of plans out there that work well where management uses their own discretion to determine how incentives for employees are distributed.
  • Establish an incentive link. Right at the beginning of a particular performance period, the employee knows exactly what’s expected to them and what the consequences can be or what the rewards could be. If you’re able to establish that link, your plan for distributing incentives for employees will be much more effective.
  • Have a written document that actually describes this and everyone should get a copy of it. Everyone understands how the incentive plan works and how their pay out of the incentive program was actually calculated. You also have to try to cover all the things that possibly could happen without writing a 40-page document. Most incentive programs can probably be described in about 3 – 4 pages. But that covers all the things that could possibly occur even where and there’s no problem in having clauses in these incentive programs that will say, “You know, if certain things occur, management discretion is being used.”
  • You also need to cover things that probably will occur such as staff changes. Most of the legal problems that occur with incentive programs occur in a termination area. An employee terminates, they think they’re doing an incentive, you don’t think so. Well, it’s worth your time and effort if you’re going to put business in writing to actually also describe how you’re going to measure or handle termination situations.

    So, if they quit during the middle of the year, you are not liable to actually make those payments. From a legal standpoint you can do just about anything you want to as long as everybody understands what the rules are in termination clauses. If they’re put in their written document, it will cover you in these kinds of legal situations. It also, this written document will clearly specify the expectations for employees and what the rewards are so you have this incentive link.

Edited Remarks From “The 7 Deadly Sins Of Employee Compensation Plans (And How To Fix Them)” by Rick Olivieri

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