The BusinessCPR™ Contributions Management Process or CMP is designed to position the people who work for you for success in their role at a profit to you.  It’s how you align role and position requirements with the individual.  It’s how you acknowledge performance and coach for improvement.  An incentive system stems from predetermined rewards acknowledging planned contributions to reach an established goal.  Incentives are rewards for achievement paid to employees out of profits generated, not the promise of future profits.

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 B-CPR Step 2 business profit plan goals.

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 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 independent of management.

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.

First, determine the method of setting the measures of achievement by which their incentives are to be awarded.  Effective incentive systems have predetermined or known goals that participants understand.  Without established goals, the employee cannot improve their control over their performance to reach the incentive goal(s).  A well-designed incentive goal will have the following elements:

1. 1. Contains known and achievable objectives
   2. Must be under the control of the participants
   3. Must be fair and of known value
   4. Must have measurable elements or qualities
   5. Avoids subjective influences in determining whether the goal was met or not

Step Two – establish the type of reward that reinforces the desired behavior.

The second component of an effective incentive system lies in the desirability of the reward or recognition.  A “reward” must have value to the receiver for it to incentivize.  As a result, rewards will vary from person to person.  Many times, having a menu of rewards is more satisfying than having only one.  The primary criteria to consider in selecting the right incentive rewards are:

1. 1. Have perceived value to the receiver
   2. Include public recognition, particularly to peers
   3. The achievement should have clear factors of Otherwise, it will not stimulate individual effort to excel
   4. Must be attainable by all participants
   5. Must frequently be given to be most effective

The most common types of rewards are the following:

1. 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

 Step Three – design the incentive program to criteria that are well defined for measurement.

Your options are to keep it simple or create a more involved program based on the planned results you want to realize through your incentive program.

Simple Programs:

1. 1. Sales Commissions
   2. Wage Increases (Based on Employee Performance Evaluation)
   3. “Employee of the _________”
   4. Turkeys for Thanksgiving.
   5. Christmas Bonuses

Complex Programs:

1. 1. Wage Incentive Programs based on exceeding profits and sales goals
   2. Budgetary Controlled System
   3. PieceWork Payment
   4. Profit-Sharing Program (these must adhere to Federal reporting requirements)

Step Four – determine incentive pool funding from excess profit and any pool funding deduction penalties.

Any incentive distributions must come from the incentive pool(s) funded by excess profits, as determined in your B-CPR Step 2 monthly profit plan.

Once the total incentive pool funding is established, the next decision is how many incentive pools you will be paying out from?  Will everyone in your company be paid out of a shared company pool funded by profits, or will you have multiple department-specific pools that allow high-performing departments to capture a larger share of the incentive pool for their department employees?

Should there be a profit loss in that incentive period, the loss WILL CARRY OVER to the next incentive period since ALL incentives are funded through profits regardless of individual performance.

If management wishes to create a minimum incentive distribution to employees, that amount must be included in the annual profit plan as a fixed (overhead) amount.

Without a performance assessment, it is impossible to differentiate incentive payouts that enable you to pay those contributing more to your results.  Click here to access the BuinessCPR™ Incentive Form.  Paying more in incentive payments to those who contribute more is only possible when you take incentive money from those who contribute less.  Fail to do this, and you fail to have an incentive system that rewards for performance.

It is also essential that anything deemed unacceptable, regardless of company profitability and individual performance, has the following implications:

1. 1. SAFETY — for the company to remain successful, we must keep safety at the forefront of our minds. Do this by having a penalty in place, negatively impacting the incentive pool for everyone should there be an avoidable safety violation by anyone.  For example, for each “Time Lost” accident during the quarter, ALL incentive pools will be reduced by 25%.  If there are four “Time Lost” accidents, there will be no incentive payout.
   2. EQUIPMENT LOSS OR DAMAGE — any repair cost for damage to company equipment due to misuse or abuse should be charged back to the department’s incentive pool. The replacement cost for any tools or excess material missing is deducted from that department’s incentive pool.
   3. QUALITY — a competitive advantage for your company is the quality of your work product. It also helps to ensure you are paid on time by your customers.  Quality includes the process of performing work and your customer’s experience in doing business with you.  Hours spent performing rework get deleted from the incentive pool since more hours are being worked for the same revenue.  It should be noted that quality issues will also be viewed as performance problems, resulting in disciplinary action.

Step Five – determine incentive program frequency, eligibility requirements, and payout timing.

Once the measurements are identified and the type of reward and incentive program is established, the next step is determining the reward frequency and eligibility for incentives.  For example, if you adopt a quarterly program, the first full quarter following their initial 30 days of employment makes them eligible.  I.e., if someone is hired on April 15, their first quarter of eligibility will start July 1 (30 days are up on May 15, then the first full calendar quarter would start in July), and the reward would be paid in October.

Payout timing can vary from the next pay period after the award is validated within 30 days after the closed incentive period.  It is also essential to establish that incentive eligibility and distributions to individual employees be determined as follows:

1. 1. Must be employed on the first day of the incentive period and still employed on the payment
   2. Cannot be on a written warning or worse regarding disciplinary action at any time during the incentive
   3. Must not have any safety issues during the incentive period to be eligible.
   4. Need to have received an incentive performance evaluation from their manager at the end of the incentive period.
   5. Since every incentive reward paid out is above the wages paid, the company reserves the right to change or terminate this program at will.

An employee incentive program utilizes excess profits based on the company’s profit plan.  Weighted distributions (e.g., supervisors are allocated a higher potential distribution than their subordinates) and employee performance evaluations are how you reward those employees who contribute the most effort that resulted in excess profits to be shared through your incentive program.

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

Would you like some help setting up an employee incentive program?

Click here to speak with one of our certified BusinessCPR™ Business Coaches to learn how easy it is to set up an incentive program that helps you make more money by rewarding your high-performers out of higher-than-planned profits.