How do I create an incentive compensation plan?

Consider these seven steps to creating an effective incentive compensation plan.

1. Start at the Top.
2. Align Measurable Tasks with Company Goals.
3. Tie Incentives to Finite Goals.
4. Set “Stretch” Goals.
5. Make the Plan Adaptable.
6. Communicate the Plan.
7. Establish Parameters to Protect the Integrity of the Incentive.

What is an incentive compensation plan?

Incentive compensation is a form of variable compensation in which a salesperson’s (or other employee’s) earnings are directly tied to the amount of product they sell, the success of their team, or the organization’s success.

What are examples of incentive plans?

Commonly recognized business strategies, such as customer reward programs or commission paid to employees, are examples of the incentive compensation plan in action. Customer reward programs are a common form of incentive compensation plan.

What is an example of a compensation plan?

An example of an employee compensation plan for salary levels is one based on a salary scale that considers education, years of professional experience, credentials and qualifications such as job competency and functional expertise.

What is incentive plan for employees?

Plan Objective. The objective of incentive plans is to motivate employees at all levels and to show appreciation for a job well done. Any incentive plan, though, needs to be reviewed periodically to ensure the company is meeting the goals and, if necessary, make changes or modify the plan.

What is a compensation plan?

A compensation plan refers to all the components of a compensation package (wages, salaries, and benefits), the manner in which it will be paid, and for what purpose employees receive bonuses, salary increases, and incentives.