According to the study "The Effects of Individual Monetary Incentives," authored in part by Dr. Alyce M. Dickinson of Western Michigan University in the US, a financial incentive program will almost always have a beneficial effect on employee motivation and productivity, regardless of the specifics of the program itself. The outcome of the study demonstrates that workers are more likely to put forth their best effort when they stand to directly benefit from it. It is up to each individual employer to determine which motivation-boosting financial incentive program best suits the company business model.
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Cash bonus incentives
Direct cash incentives are often the best choice for getting quick and quantifiable results from employees. Some companies overcomplicate their financial incentive programs by limiting what an employee can spend the reward on. For instance, young employees with education-related debt are not likely to be interested in a retirement fund-matching financial incentive and would simply prefer the money to pay down their debts. Most employees, regardless of age, value personal choice in how they spend their incentives, and when it comes to freely making use of the financial reward, cash is still king. A cash bonus is a particularly potent form of financial incentive in that it serves as both a recognition to individual employees and a way to help them meet their day-to-day needs. Cash bonuses are generally offered as either an individual-level performance incentive or in the form of an annual bonus based upon the company's success that year.
Stock option incentives
Stock options allow employees to directly engage in the ownership of the company. Stock options can be offered either as an optional paycheck deduction or via a voluntary investment-matching framework. Stock options are a helpful option in companies attempting to instil a long-term sense of loyalty among workers, who when heavily invested in company stock are more likely to take an interest in the success of each day-to-day business endeavour. Stock option incentives are also helpful for struggling companies, because they can bolster a struggling business through direct employee support; this is a particularly valuable strategy when other investors are in short supply. Stock options are not only in the best interest of the company during lean times; when a company is reporting healthy profits and share price increases, employees who have invested in stock options immediately can enjoy a tangible form of profit sharing. Shared growth between the company and employees via stock options has a positive effect on public relations and demonstrates to employees and the public that the company supports its workers and that supporting the company through purchasing its products is an investment in the local community.
Matching retirement savings incentives
Optional pensions for employees also make an attractive financial incentive, but as a motivational factor retirement savings programs could fail to inspire younger staff. Younger employees who do not yet have retirement on the mind can opt out of retirement savings programs, instead keeping more of their overall paychecks. Matching retirement savings incentives allow a company to finance a pension for its workers while simultaneously limiting its cost by splitting evenly with the worker, rather than paying for it entirely out of pocket. Retirement savings incentives appeal to middle-aged and older workers looking to build a retirement income, as well as to employees seeking lifelong careers with the company. Matching retirement savings programs add an element of long-term security and peace of mind to those who have contributed to the success of the company and are therefore a worthwhile form of financial incentive.
Pros and cons of commission-based incentives
Using a commission-pay framework is one of the more controversial methods of soliciting employee motivation. Proponents of a commission-based pay structure suggest that employees are likely to work their hardest when paid based upon their success. On the other hand, critics point out that employees paid entirely by a commission have a lack of personal security, which can result in long-term negative psychological consequences. The effect of a commission-based financial incentive should also be considered from the viewpoint of consumers, who might shy from dealing with what they view as an overly pushy salesman using pressure tactics. Commission programs might work in some of these models to sweeten the pot, but these programs should be carefully monitored by management to ensure that they do not drive away customers, who could come to view front-line sales representatives as predatory.
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- "Entrepreneur": "Fight for Might"; Mark Henricks; January 2006
- "Entrepreneur": "Choosing an Employee Incentive Program"; Aubrey C. Daniels; September 2, 2002
- Alyce M. Dickinson: "The Effects of Individual Monetary Incentives..."; Barbara R. Bucklin et al; 2003
- About Employee Benefits: Employee Incentive Schemes Explained
- HR Management: Motivating Incentives