Employee recognition programs acknowledge and reward valuable contributions, motivating employees and reinforcing behaviors that drive business success.

Primary Implication

Just as dividend payouts to investors are based on the level of profit earned, not out of anticipated but not yet earned profit, the same must be true for your employee incentive program.

Any recognition or rewards given to employees must be for an earned achievement.  The minute your attempts to incentivize employees to go above and beyond become an entitlement to your employees, you have a problem.

Just as no investor earns a return until there are profits, your employees shouldn’t be rewarded until you exceed your planned profitability goals.

Overview

At its core, employee recognition is the timely acknowledgment and expression of appreciation for an employee’s contribution to the business’s success.  It could be a sincere thank you for a job well done, a special shout-out during an all-hands meeting, or even an incentive for meeting a performance goal.

An employee recognition and rewards program aims to reinforce particular behaviors, practices, or activities that result in superior performance that exceeds your planned business results.  You never want your incentive program to be viewed as a “benevolent” gift from management to employees.  If it is to be of value to all involved, it must be an earned achievement.  One that rewards for performance as measured by those elements under the control of the participants.

Another critical incentive program design condition is that it be perceived as fair by all parties involved.  You know you have a winning incentive program when you see the desired behavior you want to exist taking place independent of management.

The chief reason for providing your employees with an incentive program is to increase the quantity or quality of performance of employees for the benefit of the company.  An incentive plan designed to be mutually beneficial to both employer and employee is a useful tool in realizing your BusinessCPR™ Management System Step 2—Plan for Profit goals.

Below are five steps to designing an incentive program that produces superior results:

Step One:  set the measures that confirm the desired behavior is being met or exceeded.
Step Two:  establish the type of reward that reinforces the desired behavior.
Step Three:  design the incentive program to criteria that are well defined for measurement.
Step Four:  determine incentive pool funding from excess profit and any pool funding deduction penalties.
Step Five:  determine incentive program frequency, eligibility requirements, and payout timing.

The most common types of rewards are the following:

1. Bonus, Salary Increases, Cash Payouts
2. Plaques, Trophies, Certificates
3. Flowers, Dinner Out
4. Extra Privileges
5. Time Off with Pay
6. Profit Sharing Participation, 401k Match Contributions
7. Use of Company Facilities or Resources, i.e., the Company Cabin and Boat
8. Points towards incentive programs involving paid trips or merchandise purchases

Your employee incentive program utilizes excess profits based on your company’s B-CPR Step 2 Profit Plan, weighted distributions (e.g., supervisors are allocated a higher potential distribution than their subordinates), and employee performance evaluations.  This is how you reward those employees who contribute the most effort that resulted in excess profits to be shared through your incentive program.

Since all incentive payouts are based on gross profit above budgeted profit, all payouts are geared to promote teamwork for all employees included in the plan. Accordingly, the higher-rated employees will tend to motivate those employees who perform at lower levels because substandard performance costs the better performer’s money.