Incentive Compensation: 5 things to take care of while designing Incentive Compensation Plans

December 23, 2022
Daily digest

Incentive compensation is an important management tool for organisations to motivate and reward employees for outstanding performance. By offering an additional form of compensation, an organisation can reward hardwork and dedication, improving overall job performance and motivation. Incentive compensation can come in financial rewards, such as bonuses or stock options, and non-monetary rewards, such as awards.

It is designed to drive desired behaviors and encourage employees to strive for excellence. Companies can use incentive compensation to set standards, reward excellence, and provide motivation and recognition. By offering incentives, an organisation can ensure that employees remain engaged, motivated, and satisfied with their job and environment.

Factors to consider when creating an incentive compensation plan for your company;


Set Measurable Objectives

The first step when setting up any incentive compensation plan is to set clear, measurable objectives that the company can use to measure employee performance.

● What do you hope to achieve with this project?

What motivates your employees?

● Who will be receiving the awards?

All of these should be considered when setting up the structure and parameters of the plan. This will ensure that you reward behavior that benefits the company and clarify what they need to do to earn the incentives.

Track Performance

To measure the performance of each employee against the set objectives, you need to be able to track the progress made. You must have adequate systems to evaluate and record employee performance, such as feedback forms, surveys, etc. A comprehensive tracking system also allows you to provide immediate feedback to employees, which can be highly motivating.

Reward the Right Behavior

Knowing exactly what behavior you want to reward is crucial. Ensure you reward behaviors that benefit the company, not just behaviors that make an employee look good. This can include meeting targets, adhering to operational standards, or exceeding customer service expectations.

Communicate the Plan

Effective communication is vital when it comes to incentive compensation plans. Each employee must receive a thorough explanation of the plan for them to understand how the company will reward them and what they must do to achieve incentives. Creating and communicating the objectives helps foster a sense of purpose among employees and encourages them to work toward tangible goals that can result in real rewards.

Monitor and Adjust the Plan

Just remember that what works for one employee cannot work for another. So it is essential to monitor the performance of each employee and adjust the incentive plan accordingly. This will help to ensure that the project stays relevant and that employees are motivated by the rewards they receive. Additionally, it is essential to review the plan periodically to ensure it is still aligned with your company’s goals.


Incentive compensation plans are essential to any business plan, as they reward and motivate employees to achieve success. However, designing and implementing an effective incentive compensation plan takes careful thought and planning. By considering the pointers mentioned above, businesses can ensure that their incentive compensation plan is effective and efficient and that employees are adequately motivated to succeed.

Find out how Compport can help you manage all your Incentive Compensation process, book a demo today!

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