Incentive Pay Program:
5 Steps to Retain High-Quality Employees

Employees are quitting. (An average of 3.95 million workers quit their jobs each month in 2021)

The supply chain is straining. (And recent international developments will compound the issue)

Wages are skyrocketing. (Businesses are expected to increase pay by an average of 3.9% in 2022)

It’s a difficult time to lead a retail distribution, logistics, light manufacturing, or most any other supply chain-related operation right now. The headlines are filled with bad news, whether it be the soaring numbers of workers quitting their jobs, or the increasing rates organizations have to pay in order to lure employees back.

Now more than ever, attracting, retaining, and compensating high-quality employees is crucial. But paying competitive wages to your hardworking team members is just the tip of the iceberg. What about ensuring your operation is receiving the needed effort and production levels from your people?

Incentive pay programs offer an answer to that question. By creating a system that regularly rewards employees for going above and beyond, employers have a cost-effective way to encourage more hard work and buy-in. Not all incentive programs are created equal, though.

Here are 5 steps to ensure an effective incentive program:

1. Get Clear

Set everyone up for success by creating a structured incentive program that is clear to both employees and your leadership team. The goals and targets should be clear, specific, and achievable for the employees. They need to be easy to understand, as well as materially beneficial for your organization.

While “random acts of praise” are nice, if the incentive “program” is really just a bunch of uncoordinated attempts to single out great workers, you run a lot of risks. Chief among those risks is the real threat of alienating everyone else on your team. If you’re not using hard-and-fast rules or goals as the basis for incentives, you’re allowing for (very) imperfect human judgements to cloud the picture. That opens the door to showing favoritism, unintentionally or not. If there’s no data backing up a reward, it’s easier for others to become jealous and resentful.

2. Communicate Early and Often

Be sure that rules are written early on, described clearly, and posted often. When everyone has access to the same information, worries about favoritism and perceived slights go out the door because everyone is playing on the same, level field. Ensure everyone stays up to date with the system and knows if there have been any changes made.

This is a good time to consider the diversity in your workforce in terms of language and literacy. How do you need to  communicate the details to ensure that all of your employees can truly benefit from this program? If the details – and any subsequent changes – are not fully communicated to all employees, you can actually degrade the morale of your team.

3. Analyze Your Financials

Your team has probably already been strategic and systematic about determining base wages, but don’t stop there – continue that analysis into the incentive pay structure. To understand what you can afford and what will be motivating, here are some details to work out:

>> Clarify expected performance

>> Consider work content variations, potential savings and gains

>> Anticipate effects of technological or capital investment changes

Once the financials are in-place, measure the output of each employee or group versus the developed standards, and reward the employees for exceeding the targets. Remember, the pay should be based on performance.

4. Anticipate Loopholes

Identify any shortcuts the employees may use to increase their productivity. The last thing you want to do is inadvertently incentivize your employees to cut corners or reduce the quality of their work.

Many businesses initially add quality steps downstream from the process that will catch any errors before full implementation of the program. The best programs actually link quality objectives into the incentive pay to ensure a positive impact on both productivity and quality benchmarks.

5. Build in Feedback and Improvement

To make sure the program continues to work for leadership and the employees, get feedback on how it’s going. Even though leadership has likely put time and energy into it, hold all the details loosely – it’s unlikely to get it perfect on the first try.

Develop a mechanism that is safe, easy, and convenient for all employees to provide suggestions and comments to improve the process. Ask for opinions on the best rewards, as well as how the program itself can be made more fair and generous. When employees have a way to shape the program, that will naturally increase their appreciation (and buy-in) for the incentives.

From a leadership perspective, record keeping and statistical analysis will clarify the success of the program, ensuring that all are benefiting from the implementation of the model.

When you follow these steps, you are infinitely increasing your odds of running a smart, innovative, and successful structured incentive program.

Innovations in pay, innovations in performance

In the current business and economic climate, compensation matters more than ever before. But compensation can encompass a number of things, not just the base hourly wages your employees receive. Incentive programs are innovative measures that empower your employees to make the most of themselves, while also promoting increased success for the overall organization.

As innovative labor performance experts, nGROUP makes use of incentive programs across many of our insourced workforces. We’ve seen firsthand how much of an impact these programs can have, and we know that a well-run system is worth the effort, time, and extra cost. We use the 5 steps detailed above to create structured incentive programs that are fair, transparent, and always drive better business outcomes for the employer.

For help with creating a structured incentive program in your supply chain operation, get in touch with nGROUP today. Our labor management professionals are ready to make it easier for you to justly reward all the hard work your team puts in everyday. The result? Bigger production numbers achieved at cost-effective rates. Let’s innovate your compensation today.