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What is Incentive Management?

By Osmand Vitez
Updated Feb 01, 2024
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Incentive management is the process of offering benefits to employees who achieve specific goals. A common form of this management technique is offering bonuses to commission-based employees. For example, an employee who achieves a specific sales goal in dollars may earn a bonus or additional commission percentage. A flaw with incentive management is that it may only be limited to employees who directly influence the firm’s sales. This creates an inequity among employees, and other employees may not work as hard if no incentives exist.

To rectify the inequality found with incentive management, firms can create specific goals for each employee or department. The chief financial officer may receive a bonus if the accounting department achieves a current ratio more than 1.0, indicating the company is in good financial standing. Bonus incentives may increase as the ratio climbs, achieving levels over 1.5 and 2.0, for example. Other departments may also have their own specific measurements. This allows for increased focus by every department on improving the company’s operations.

Companies should create an incentives program with measurable goals. Common standards for incentive management should include a definition of the targeted performance, how to measure the incentive, performance of employees achieving the incentive, and a definition of the specific return on investment expected. This leaves little doubt as to whether a department or employee actually achieved the goal. Companies should work with department managers to properly institute the incentives program and get all employees on board with the new system.

Other options may also be included in the incentive management program. The company can create different groups of employees, including best in class, average performers, and underperforming employees. The company should evaluate employees privately and file a review in each employee’s permanent file, not to be shared publicly. This process serves two purposes. Department managers may receive an incentive for the number of best in class workers, and a worker moving from a lower group to a higher group may receive a bonus.

The main goal for incentive management is to improve all of the company’s operations. The program should reach all areas with some level of incentive. Even a small bonus given to nonrevenue-generating employee positions can help improve business operations. The company can also promote its culture and teamwork by including all workers in the incentive program. Removing nonperforming employees may also be easier as the individual has a record of not achieving the company’s goals.

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Discussion Comments
By sneakers41 — On Aug 28, 2011

@Oasis11 - Wow that’s great. I think that developing employee sales incentives in the short term also helps to keep employees focused. I think that long range goals are good, but sometimes small contests in which the employees can win several gift certificate for a great performance at the end of the month also motivates the employee as well as the rest of the staff because others will want a chance to win as well.

An incentive management system like this is cheap to introduce, but the rewards are excellent. Employees will be drawn to the excitement, and the staff will eventually try harder to achieve the productivity goals each month. Some people perform better when the focus is on a shorter time frame.

By oasis11 — On Aug 27, 2011

Most pay for performance incentives that I have seen have usually revolved around exceeding certain sales goals or performance standards. At my husband’s company if the department exceeds the projected revenue goals for the year the entire department gets a bonus.

This really builds morale because everyone works as a team and appreciates one another. The goals are realistic which is why the staff is so motivated. All of the support staff that is part of the department receives a bonus which is quite large. It is a really good idea because no one is left out and everyone's contribution is appreciated.

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