Investing in Employee Incentive Plans Can Boost SME Productivity

“Indeed, not all SME owners and managers can afford to provide grand incentive plans. But the good news is these programs do not need to costly or always tied to commissions or bonuses.”

It doesn’t matter what kind of small to medium sized enterprise you operate. Whether a bakery, a crèche, salon, hotel, gymnasium or restaurant – one of the most effective ways to create a happy workplace is to provide incentives that reward employees for individual or group performance or the success of the entire organization.

Employee rewards schemes can have a positive and powerful effect on an SME’s productivity level, efficiency and quality of products or services delivered. It can be designed in many different ways – but it is important that they are structured fairly and are not subject to arbitrary interpretation. They should not be overly complex, which means easy for all to follow the rules. They should also be attainable, if one works hard to achieve them.

Performance-based cash payouts are among the most commonly used incentive programs. Other forms include profit sharing and longevity or loyalty-based rewards. Let’s examine these examples closely:

Performance-based cash payouts
This scheme recognizes an employee’s performance over an entire rating period with a cash reward. Business owners or managers can design a rating pool system that allows employees rated in higher pool to receive a larger cash reward than employees in a lower level pool.

Experts say performance based cash incentives often achieve short-term goals for businesses, such as increasing productivity or reducing problematic behaviors such as employee attitudes. For SMEs that cannot afford to offer annual employee raises or promotions, one-time cash rewards can be a way to give extra compensation to top performers.

There are some downsides. For example, if incentives are based on competition among employees, it can lead to an environment where employees are actively trying to out-do each other or sabotage fellow employees to the detriment of the company’s goals.

Profit-sharing Incentive Plan
This is when management designates a percentage of annual profits to be shared by employees annually or whenever certain profit targets are met. In setting up a profit sharing plan, management needs to adopt a written plan document, legally binding, that clearly explains how the program works.

It is important to regularly share information with employees about whether profit targets are being met during the course of the year to avoid situations where employees are blindsided by a decision not to reward any bonuses due to poor performance.

One benefit of a profit-sharing plan is that it sends the message that all of the employees are working together on the same team and are all invested in the success of the organization. It encourages employees to work collaboratively on projects and builds comradery.

A major weakness of profit sharing plans is that it can create frustration if there are perceptions of unequal contribution among group members. Also, because individual employees do not know the direct impact of their performance on profitability, the payments may gradually feel like an entitlement and not a motivational factor.

Longevity-based Employee Rewards
Sometimes referred to as Years-Of-Service awards, this program rewards employees for longevity and loyalty to the organization. It can boost morale by showing that the company and management truly appreciates its employees, especially those who stick through year after year.

Typically, it is most effective to present the Years of Service award in a visible way, at a company-wide ceremony, to maximize its motivational effect on other employees. The reward does not have to be monetary; it can be a tangible gift like a gold watch, a home appliance or personal electronic device. Paying for travel expenses or vacations is also commonly used in some businesses. Of course, the value of the present or cash reward can be structured in a way that it increases based on years of service.

Like other incentive programs, Employees who feel they are appreciated and valuable members of the team are less likely to jump ship when a better opportunity arises. A simple pat on the back or an award certificate for a job well done makes workers feel valued, and that can foster loyalty, teamwork and cooperation

Some experts have argued against longevity-based incentive programs in favor of performance-based awards. Most organizations believe a combination of the two is effective; that is recognize achievements as well as longevity.

Be Creative with Incentives
Indeed, not all SME owners and managers can afford to provide grand incentive plans. But the good news is these programs do not need to costly or always tied to commissions or bonuses.

Management can think of other creative ways, such as paying for employee gym memberships, travel expenses or providing them discount gift cards. A manager can also offer high performing employees time off from work or the flexibility to make their own hours.

Ultimately, the idea is to make employees feel they are appreciated and valuable members of the team. And, sometimes, all it takes to achieve this is a simple pat on the back or a certificate for a job well done.

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