What kinds of incentives should your small business consider?

By Christopher Freeburn

Enthusiastic, well-motivated employees are the backbone of your small business's success. Fostering an environment in which employees feel both rewarded for their performance and part of a team can greatly increase your company's productivity and competitiveness in the marketplace. Your customers will certainly notice the difference between happy, well-motivated employees and dissatisfied, disinterested employees who provide only lackluster or incompetent service.

Incentives like bonuses and perks for increased productivity or the attainment of particular goals, if wisely implemented, can boost your employees' output while increasing the attention they pay toward the details of day-to-day business operations like customer service.

The range of incentive with which to reward your employees is considerable, which raises the obvious question of which ones will work best for you.

What can you offer?
The first step in deciding how to structure incentives is to determine what incentives your business can offer. Incentives run the gamut from financial bonuses, extra vacation days, office parties, perks like parking spaces close to the office, or extended lunch hours. Basically anything that improves an employee's day can be offered as an incentive, so long as your business can afford it. Some businesses don't have the income for cash bonuses or extra vacation days; in these cases, you need to be a little creative: Try offering a discount on the company's products, or letting employees leave early on Fridays. "Money isn't the only incentive workers appreciate," says management consultant C. Davis Fogg. "People have psychological as well as financial needs. More personal time to be with their families, or even just some visible sign that your company recognizes their efforts--a plaque or public pat on the back--can go a long way." Items that help build an employee's sense of loyalty and co-identification with your business are also helpful--i.e. shirts, jackets, or hats bearing your company logo.

Group vs. individual rewards
Many businesses assume that offering a single reward or bonus to the best performing individual employee will create competition among all employees, raising the business's productivity as a whole. But this is not always the case. In fact, rewarding a single employee can result in hurt feelings and resentment among the other workers, particularly if that one employee is consistently receiving such awards. Consider spreading out awards on team basis. Bonuses can be staggered so that the best performing people get more, but keep some level of incentive open to everyone. That ensures that employees who do not believe they are likely to get the top reward still have an incentive to improve their performance, knowing that there will be some level of incentive for doing so. (For more on competition within the workplace, see Part II of this series.)

Set appropriate goals
Using incentives to boost productivity works best when the specified goals are reasonable. If you set the goals too high, you risk discouraging your employees if they are not attained, or making them feel that you are asking too much for too little reward. There may be times when a particular project demands unusual levels of hard work and commitment on a tight deadline. In those cases, be sure to reward your employees accordingly.


"For incentives to be effective, they have to be commensurate with the effort involved in earning them," Fogg advises. Setting the bar high for occasional special projects is understandable, but for more mundane productivity targets, make sure you set goals that can be reasonably achieved. Setting reasonable goals will also help keep all members of your team on board. If the goals are too hard to achieve, some employees will not even bother trying, or stop trying too early. In that case, your incentive program may have failed before it started.

Make it clear
In order for an incentive program to work, your employees need to know exactly what you are offering them and what they need to do to earn it. Put the incentives program in writing, clearly explaining all of the terms and conditions of your offer. "Talk it over with your employees to make sure they understand exactly what you want," says Fogg. "The more communication, the better. Be sure everyone understand how it works."

Once you have made your employees aware of the terms of your incentive program, stick with them. Your adherence to the rules must be consistent. If you grant one employee a bonus or share of profits that are not clearly earned under your written guidelines, other employees will expect you to offer them similar leniency. Putting the plan in writing and applying it consistently prevents misunderstandings that might lead to resentment and recriminations-and even possibly litigation-from your employees.

Keep track of results
Your business is unique. So are your employees. An incentive program that works for your competitor across town may not work for you. Try different incentive options and keep close attention to how each affects your results. Solicit feedback from your employees to see what options they prefer.

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