Six Key Design Features for Effective Incentive Programs

by on June 18, 2009 · 0 Comment POSTED IN: HR Info Center

What Documentation for Incentive Programs should look like

Incentive programs vary as widely as the organizations that offer them. A fastgrowing, sales-driven company’s plan will probably look very different from that of a nonprofit charity. One thing all good incentive programs share, however, is a clearly written plan document. The better your document, the harder people will work to earn the promised incentives, and the greater performance benefits you’ll achieve. Plus: Good documents dot the i’s and cross the t’s that keep you out of legal disputes with disgruntled employees who may claim they were cheated.

Here are six design features an incentive plan document can’t do without:

  • Brevity. The document shouldn’t exceed 3-5 pages.
  • Clarity. Make sure you tell employees exactly what they have to do to earn the incentive(s), as well as how and when they’ll be paid (annually, quarterly, monthly, etc).
  • Context. The document should remind employees that incentive pay is in addition to base salary and benefits, reinforcing the point that incentives allow them to earn extra money.
  • Duration. You need a start date, and in many cases an end date for the plan.
  • Conditions of eligibility. Who’s eligible for the incentive programs? All employees or only certain categories? Also, how will any group or team incentives be divided?
  • Definitions. Normally, you’ll need up to half the document to lay out the incentive programs’ terms and conditions. Carefully define base pay and the incentives themselves. It’s also wise to state how new hires during the incentive period will be treated, as well as any employees who are terminated during the period. The latter will help keep you off the legal hook.

Finally, your document should include an opt-out clause reserving the right to change or revoke the plan at any time. You need that flexibility in case of an unexpected business downturn.

Source: Rick Olivieri, Merit Resource Group,

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