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August 14, 2012
How to Create an Incentive Plan That Works
 
In most companies the lack of communication, leadership, information sharing, and especially appreciation might be major reasons that employees leave the company. However, salary, perks, benefits, and non-financial schemes still matter — sometimes more than many might imagine. I strongly believe that more than 30% of all employees are constantly looking for a new job, regardless of the degree of happiness in their current job. Therefore, appropriate incentive schemes and reimbursement policies are still essential when it comes to properly rewarding your employees. Here are my lessons learned from 10 different companies across various industries over the last 24 years.

Profit sharing and participation. One of my first companies set two to four objectives for every employee at the beginning of each year. Upon accomplishing the objectives, each received a bonus that had been clearly defined. However, apart from such a “normal” bonus the company shared at least 80% of their total net profit with their employees. The board normally sat together for one day and analyzed the performance of each employee against various criteria such as results, initiative, or innovative solutions they delivered. This policy allowed the allocation of an extra bonus of up to $30,000 to employees who held neither a management nor project-leadership position. In some years the company was able to share a large amount of their profit; in other years they were not able to do so. This incentive scheme was one of the most powerful ones in terms of employee retention and motivation I have ever seen.

Share allocation, not just for managers. I strongly believe that true leadership understands how to turn employees into “intra-preneurs” who can fully live up to their calling and therefore reach peak performance. Many companies are not listed on the stock market but some have issued “internal” shares. This allows them to allocate shares to any employee granting them benefits from corporate profit and having a say in some key decisions. An employee share scheme is an extremely powerful way to give employees a stake in your business and help improve its performance.
 
Leisure programs. Some companies send their best performing people, including their families, abroad for attending educational or leisure programs. I personally consider such a scheme useful as long as the program offers not just leisure but also an educational component that in turn adds value to the company as such.

Reward results and not time and experience. When it comes to rewarding extraordinary performance, results matter most, at least to me. Some companies still reward their staff just according to age, experience, and hierarchy. However, many employees still think they have just to spend their time from 9 to 5 so as to earn their salaries. According to recent studies, more than 40% of all employees spend more than two hours on the Internet pursuing private interests. Make sure that you as a corporate leader set clear signals when it comes to result- rather than time-oriented financial compensation.

Reward recruitment efforts. It has become hard to find good and experienced people. I have therefore started to tell my staff to look for talented people. They often have a very valuable network with colleagues who work with competitors. Each time they bring a new employee who stays at least one year with us, we pay a reward of up to $5,000.

Balance your bonus schemes along the value chain. Not just product- but also service-oriented companies, such as renowned engineering companies, suffer from the problem that salespeople are purely compensated against how much money they generate, regardless of the real capacity available in production. This often leads to huge conflicts. Therefore, the typical bullwhip effect where supply does not meet demand should also be considered when it comes to setting targets for a sales or production team. Furthermore, consider that many salespeople often load the value chain with business that is not profitable. So, your sales force should be trained not just to boost sales but also to acquire profitable business. A team effort across departments for defining sales figures might be advisable.

Do not just reward for higher profit and sales, but also for cost cutting. Cutting costs, especially when it comes to indirect costs, can be tremendous. In one of the companies I worked with, we launched a cost-cutting program that helped to identify a cost–cutting potential of several million dollars. In the end we managed to cut costs by nearly $10M instead of laying people off. Furthermore, the cost-cutting team received a very attractive bonus, which amounted in total to more than 20% of what has been saved. If you’re not sure about how much of a bonus is really attractive, then ask your employees first.

Be flexible and offer your employees the financial means for personal growth. Younger employees especially want to develop themselves. Therefore, never shy away from sending them off to renowned business schools for attending special courses. Some would even like to attend an MBA but lack the financial resources. We have the policy that a certain number of people get a loan at zero percent interest for attending Master’s programs at some of the best universities around the world. They are obliged to pay the loan back within two to four years. Such a program allows us to not just motivate people but also to properly develop them whilst retaining the best talents.

Sabbaticals. We are already living in an era where talented people need room to relax and free their mind. The request for taking advantage of sabbaticals has been growing over the last years. I am strongly convinced that this trend will continue in the near future. Therefore, the option of sabbaticals lasting between three and six months should be built into today’s incentive schemes. However, this also requires companies to carefully consider the implications on the organization. This makes it indispensable that companies fill key positions quickly even if it is only for a short period of time.

Home-office and part-time jobs. Not just women but also men ask more and more for part-time jobs or the possibility to work even partly from home. Many managers still lack the flexibility to meet such needs. Good and talented people need freedom to a high degree. I know of one company where a majority of IT specialists and programmers worked from home 90% of the time. People are highly motivated and the company as such is extremely profitable compared to their competitors.
 
The goal of a financial and non-financial compensation plan is to motivate employees and increase their accountability in company goals. Every company will have to make tweaks to find a plan that works specifically for them. 

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Andreas Dudàs. Swiss, visionary entrepreneur, mentor, motivational speaker, and expert on authentic leadership. More than 20 years experience in top executive positions in over 25 countries. Founder of the BE SHiRO Group in Switzerland and India, dedicated to empower individuals and organizations to achieve greatness through authenticity. Author of “Do you dare to be yourself? Developing power in life and leadership through authenticity." Learn more about Andreas at www.andreasdudas.com/book.
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