Employee Incentive Program – Getting The Best Value

An effective employee incentive program is mandatory for your business in these days of high attrition rates and a serious dearth of talent. Companies spend sizable sums on their retention strategies, which may focus on a combination of ways to inculcate loyalty among employees – compensation, training and career growth being a few.

As the owner of a small to medium sized firm, it is natural to encounter some difficulties in the beginning. We don’t expect most of you to know how to structure an employee’s pay, let alone offer the latest in compensation packages. If you want to start from the basics, you are right on track!

Salary: The pay package must be in keeping with the profile of the job. If you require specialized skills, chances are that you will have to pay more. Information about market rates, that is, how much others are paying their employees, can be found at employment agencies, in employment newsletters etc. Based on your specific requirements, the candidate?s merit and experience and the criticality of the function, you could think of offering a higher than average pay. Once you make up your mind about the number, you need to decide the mode and terms of payment ? for example, is it on an hourly or monthly basis, through commissions, so on and so forth.


Bonus payments: Bonus payments are generally awarded as a lump some amount at the end of a specific period. Apart from the performance of the individual, the profits reaped by the company could also be a guiding factor while determining the amount of bonus payable.

ESOPs and stock options: Employee Stock Ownership Plans (ESOPs) and stock options (also called Employee Stock Purchase Plans) are often a major component of an employee incentive program. These are not only a way of compensating employees, but also effective tools in containing attrition. But before you opt for them, check if they are viable schemes for your firm. Find all you need to know in our story on ESOPs.

Deferred compensation: A key component of an employee incentive program is making deferred payments. 401(K) plans which can be taken up by US firms with at least 5 members are quite popular as they are cheaper and more flexible than the older pension plans. Incidentally, ESOPs are also a form of deferred compensation.

Insurance schemes: Health insurance schemes, as a means of compensating employees, are quite common these days. Most plans offer coverage to dependents; but it is not binding upon the firm to provide a comprehensive package covering members of the family. Ideally, such insurance schemes must be broad enough to cover accidental death, temporary or permanent disability, dental and medical insurance and the like.

Others: Perks such as an all expenses paid holiday, car allowance or hardship allowance for employees posted to far away locations, are other forms of compensation. Employees could also be entitled to receive products made by the firm at discounted rates, even free perhaps. When the facilities are extended to the immediate family as well, the plan becomes more attractive.

Read this article from Do-It-Yourself Retailing titled, “Are you paying your people enough?”. Also, ”The Compensation Handbook” by Lance A. Berger and Dorothy R. Be, at www.amazon.com could prove useful.

A good employee incentive program is key to retaining your talented employees. Many of these schemes are liable for certain tax deductions and hence spell benefits for both sides. Also, using a combination of tactics can give small businesses the flexibility they need.

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