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Considerations in Drafting Incentive Compensation Plans

An incentive compensation plan can be a great motivator for your employees. In fact, with the right plan in place, you can effectively encourage those desirable behaviors in your employees and fairly awards them recognition for their contributions. In order to not only help ensure that your incentive compensation plan is effective, but you are maximizing its effectiveness, there are a number of things you will need to consider.

Considerations in Drafting Incentive Compensation Plans

When you are in the midst of developing an incentive compensation plan, talk with top-level leaders in your organization. What kind of behaviors are they looking to reward through this plan? Ideally, you would be rewarding behaviors that boosted the business’s finances and had a positive impact on your clients. In addition to highlighting what behaviors you are looking to incentivize, you should also be discussing which employees would be eligible to participate in the incentive compensation plan. In some businesses, those employees in sales roles are only eligible for bonuses and other incentives in an incentive compensation plan. Other times, an organization may extend incentives to those employees serving in marketing roles or customer service roles.

Once you have taken the time to zero in on what performance indicators or behaviors you are seeking to encourage in your employees, it will then be critical to identify how you are going to identify when an employee has met a target goal in those behaviors and, thus, entitled to reward pursuant to the incentive compensation plan. This means you are going to need to detail measurable tasks an employee can accomplish in order to meet the goals of the incentive plan. These measurable tasks should be those that further company goals. Once an employee has achieved such a measurable task, then they would be entitled to an incentive boost under the plan. Such measurable behaviors may include sales increases, increase in customer retention, and more.

The goals you set for your employees under the incentive compensation plan should go above and beyond their basic job functions. After all, a salary is intended to compensate employees for completing the basics of their job. Incentives are bonuses to reward them for going above and beyond. Make the measurables in your incentive plans above and beyond, yes, but also be sure that they are attainable. Goals that are not realistic or feasible are not going to provide much motivation and can even end up being demoralizing.

While developing your plan, being specific will be important. This is not to say, however, that the plan should be so rigid that it is not adaptable. In fact, the plan should be able to account for things like changes in company goals. The plan should allow for consistency, but also allow for changes as the company grows and changes.

Business Law Attorneys

For assistance in developing an incentive compensation that best serves your company and its goals, talk to the business law team at Jones, Gregg, Creehan & Gerace. Contact us today.