Incentivising your employees

An independent review has said that involving employees fully in the future of their firms will help businesses to innovate, develop and grow.

The MacLeod Review of employee engagement proposed that the relationship between employees and employers should be placed at the centre of business plans.

How employers can make more of their employees

One way of involving employees in the progress of a business is to offer them a range of additional rewards. Not only can such rewards help to attract and retain experienced or suitably qualified members of staff, they can also provide a boost to productivity and improve workforce morale.

There are two ways of rewarding staff: one is through perks that are given as benefits in addition to the basic salary; the other is through incentive schemes that are geared to specific objectives or performances.

Staff incentive schemes

Incentive schemes work by offering rewards related to achieving set targets; these rewards and targets can apply to individual members of staff or a team of employees.

Incentives are particularly effective at raising productivity and at creating a connection between the performance of individuals and that of the business as whole.

Incentive schemes work best when they are directly relevant to the business or the job and when they are clear and unambiguous so that all employees understand to whom and how the scheme applies. Ideally, they should form part of an overall business strategy that includes good internal communications and supportive training policies.

Types of incentive

There are a number of incentives an employer can offer, depending on the nature of the business and the nature of the job. Incentives can be limited to one particular project or can be ongoing; they can be aimed at individuals or groups; and they can be financial or non-financial. Financial incentives include employee share options, bonuses or commissions. Non-financial incentives include, among others, additional holidays, company cars and gifts.

Many financial incentives, and non-financial incentives that have an equivalent cash value, are liable to tax and National Insurance.

Implementing incentive schemes

When introducing an incentive scheme, there are several considerations an employer should take into account. The scheme should have well-defined business objectives (improving teamwork, for example, or raising productivity).

It should be affordable and proportionate to the firm's other benefits, and should not involve excessive administrative costs. A scheme needs to be meaningful and valuable to employees, and while encouraging better levels of performance, it should not put their targets beyond realistic reach.

Employees need to be consulted so that the benefits can be properly communicated, and the scheme must not discriminate against some of the employees who take part in it.

All incentive schemes ought to be measured for their results and reviewed at regular intervals.