Purpose of Incentive Plans

Recruiting and retaining quality employees is a constant challenge for human resources professionals and small business management teams. Although employees tended to remain with their employers for much longer periods, often for their entire career, in the 20th century, the employment situation in the 21st century is much more transient. Plans that provide incentives can help reduce that turnover rate by offering a reason for employees to remain and grow with the company.

Production-related incentives can be particularly effective when offered to sales professionals, to encourage them to reach goals set for a certain dollar amount or number of new customers. Sales incentives motivate team members to work toward a set goal on a periodic basis, generally monthly or quarterly, to earn rewards such as a percentage of the sales or a bonus check for a preset amount. Sales incentive plans benefit the individual employee and the company as a whole as both reach their goals and reap the rewards.

Current employees are often the best source of information for recruiting new employees. A current employee has a good understanding of company culture and goals and can identify quality candidates who have the skills and fit needed by the company. Referral incentives encourage employees to provide potential new recruit names to the human resources or management team. This type of incentive rewards the current employee under certain conditions, primarily that the referred candidate is hired and remains with the company for a given period of time. The reward provides a cash incentive for the employee and a quality candidate for the company.

In the 21st century workplace, employees typically remain with one employer about four-and-a-half years. Younger-generation employees will only stay with their employer for less than three years. The cost of recruiting and training new employees is significant so a number of companies offer longevity incentives. These incentives are cash rewards or company-related products given to employees who remain with the company for significant periods of time, usually in increments of five years. Employees who earn longevity incentives are encouraged to remain with the company beyond the typical time-period and the company realizes a cost-savings in being able to retain employees long-term.

Incentive plans are generally designed to increase the level of productivity among employees, but can also result in increased employee loyalty and morale. When employees see tangible evidence that their work are valued and that they as people are valued, they will develop a higher level of loyalty to their employer. Positive reinforcement also builds positive morale among employees. Knowing they will be rewarded for a job well done gives them more incentive to continue working toward their goals and to help the company achieve its goals.