What is the most common type of incentive plan?

1. Incentive plans are used to motivate employees to increase production. According to the business resource Business Town, employees given an incentive plan tend to feel more attached to the company's success and may work harder to help achieve it. Incentives can come in many forms. Before you formulate your motivational program, it would help to understand different types of incentive plans.

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   • Stock Options
   • Profit Sharing
   • Performance Units
   • Increase Productivity Without the Need for Large Capital Improvements
   • 1. Understand the need for incentives
   • 2. Involve the employees
   • 3. Simple is best
   • 4. Include all employees
   • 5. Use work methods and labor standards
   • 6. Reward direct work
   • 7. Consider other factors
   • 8. Communicate the program
   • 9. Minimize administration needs
   • 10. Don’t wait to reward
   • What is a common incentive plan?
   • What are the main type of incentives?
   • What are the 3 types of incentives?
   • What are the types of incentives plan?

Stock Options

1. A stock option is an incentive offered to employees that want to invest their money into the company stock by purchasing stock with pre-tax money. According to HR Guide, employees that participate in a stock option incentive plan are able to defer paying income tax on the gains realized by their stock purchases until the stock is sold. The company itself does not get any kind of tax break by offering a stock option incentive, but it does reap the benefits of selling more stock.

Profit Sharing

1. According to Business Town, profit sharing is another incentive plan done with pre-tax dollars. The company sets aside a portion of their pre-tax profits and distributes that money to the employees. In most cases, an employee must qualify to receive profit sharing by meeting company performance metrics, and by having a predetermined amount of service in with the company. Some companies offer to place the pre-tax dollars into the employees' company retirement plans, so it can add to future fund growth. Companies may also develop a profit sharing percentage based on the amount of time worked for the company, the position held within the company or a combination of both conditions.

Performance Units

1. According to the Society for Human Resource Management, one type of incentive plan for executives is known as the performance unit. In the executive's agreement there is a schedule of financial milestones that the company must achieve for the executive to get awarded a pre-determined amount of units. The amount of a performance unit varies by company. Performance units are paid out based on a schedule agreed to by the executive and the company.

Bonus Pay

1. The bonus pay structure is common in professions such as sales, marketing and production. When the employees reach a predetermined goal, the company may create an incentive plan that pays a bonus for going beyond that goal. For example, if a manufacturing plant has a goal of 100 units in a month, the company may offer to pay each employee a bonus for each unit manufactured beyond 100 in that month.

Increase Productivity Without the Need for Large Capital Improvements

Incentive pay programs are becoming an increasingly popular supply chain initiative to increase productivity without the need for large capital improvements. Tom Stretar, Vice President of Technology at enVista, offers the following tips for implementing a successful incentive plan.

1. Understand the need for incentives

The first item to consider when implementing an incentive plan is to answer the age old questions of “Who, What, When Where, Why and How.” Understanding the responses to these questions will help align the behaviors you wish to reward as you develop the actual incentive program details.

2. Involve the employees

It’s important to understand the employee’s perspective and interest level when developing the framework for an incentive plan. Additional pay, paid time-off and rewards are the three most common types of incentives used. The use of focus groups and questionnaires will identify which type of incentive, if any, will motivate the employees to perform above normal expectations.

3. Simple is best

When developing the framework for an incentive plan, the “KISS” principle (Keep it Simple) will be easily understood by the employees and will result in a higher implementation success rate. Employees want to be able to calculate what they have earned. Incentive plans that are too complex will not be adopted by the organization as a whole and will not achieve the desired results that management expected.

4. Include all employees

Avoid segmenting out certain employee workgroups when developing the incentive plan. Incentive plans that focus on a small subset of the overall employee staff will lead to jealousy and resentment within the organization. Be creative with individual and team incentives and don’t forget about the supervisors!

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5. Use work methods and labor standards

Just like every house needs a solid foundation, an incentive plan needs a solid foundation based on Preferred Work Methods and Engineered Labor Standards. An employee observation program should be established to ensure each employee is reviewed on a frequent basis to ensure the employee understands the method so he or she can be successful. Multivariable or discrete labor standards are recommended over single variable labor standards, such as line or units per hour.

6. Reward direct work

Reward work that supports movement of goods in the facility (receiving, transport, put-away, replenishment, picking, packing, shipping, etc.). Indirect work, such as cleaning, meetings, or prep activities, should not be part of the incentive plan as this promotes a lack of motivation to get the required work done in a timely manner.

7. Consider other factors

When developing the incentive plan, consider other measurable factors besides direct productivity to ensure a holistic approach. Other common factors to consider include attendance, indirect labor percentage, quality, safety and turnover. A plan that focuses solely on productivity may experience issues with high indirect labor, poor quality work and increased safety violations.

8. Communicate the program

Build a company communication plan that establishes the expectations of the employee and management team. Make sure to review the plan with the human resources, legal and payroll departments as they also need to understand their objectives and roles. Train the program administrators and supervisors. Present the plan to the entire organization prior to kick-off through meetings and company announcements.

9. Minimize administration needs

Avoid having employees fill out daily production cards as the employees could “write” their own bonus payment. Utilize existing systems, such as warehouse management systems (WMS) and time & attendance systems for data capture. Export the data to the in-house payroll system for monetary based incentive programs.

10. Don’t wait to reward

Reward the incentives as close to the desired behavior change as reasonably possible. If you wait too long, the motivation for continued success will wane. Align the reward with your normal compensation schedule. Consider a separate paycheck if monetary rewards are used.

What is a common incentive plan?

What are the main type of incentives?

What are the 3 types of incentives?

What are the types of incentives plan?