Things to Consider
There is much to consider when implementing something of this nature and as a consultant I see many different ways that contractors do this. I use this as my outline:
1. The Company has to be incentivized first- So many times I see incentive programs that pay an employee even though the business lost overall. You should avoid this.
2. No incentives are paid on work unless the A/R invoices are paid in full. I have seen incentives paid to people for bringing in sales but when the client doesn’t pay. The employee actually brought a liability and then received incentive for it.
3. An individual needs to pay for their portion of the overhead first, or if in a team format the team must pay for their overhead before being paid an incentive.
4. Pay quarterly if possible instead of monthly. So often I see this paid monthly and it is more work for the business in producing the reports and it tends to enable a defeated mentality or stifles strategizing, where in a quarterly program you can run reports that allows greater awareness to getting money collected or activity that increases the odds of receiving incentive.
5. Pay on average by job type versus per job. Paying per job affords cherry picking and cost manipulation between jobs or gaming the system. Averaging also helps with lower margin jobs by offsetting them with better performing jobs.
6. Have transparency in your data that allows everyone to know how they are doing in working towards receiving incentives.
7. Keep it as simple as possible for if too complicated you will lose their belief.
8. Hold the process accountable to avoid inconsistency and liability.
9. Provide a time limit to collect a job in order for it to qualify for participation in the incentive plan. Most companies use 90 days and anything beyond the dollars budgeted for incentives would be used for paying interest, attorney’s fees or collection efforts.
10. Deliver when you say you are going to. Missing incentive dates will destroy the belief of those working to earn them.
11. Consider putting money away for incentives to lower the stress of pay outs and ensure the money is there when you need it.