MicroSave Briefing Note # 15 : Designing Staff Incentive Schemes
Holtmann, M.
Publication Date: 2002
Published by: MicroSave
Document Type: Paper
How much to pay as incentives?
This paper has been designed as a briefing note that lays out principles and steps for designing effective staff incentive schemes. The author begins by highlighting two important aspects of any incentive scheme:
- Transparency: It refers to mechanics of calculation, objectivity and rules that should be conveyed to all and not changed arbitrarily.
- Fairness: The goals should be attainable, rewards should be in accordance with the performances and participation should be by everyone.
The author then mentions some critical design issues:
- Timing: Incentive should be applicable to those who have at least six months on the job experience.
- Frequency of payout: Frequency should be such that incentives are not construed as an entitlement; annual or half yearly payments should be avoided.
- Percentage of incentive to total remuneration: Incentives should ideally range from 20% to 50% of the salary.
The author describes various types of schemes:
- Individual incentive schemes: Direct link between individual performance and remuneration.
- Team-based incentive: Often used for branch-based activity.
Employee stock ownership plans: Typically a one time incentive mechanism.
- Profit sharing: A good way to reduce gap between management and employees, not always suitable to reward individual performers.
- Delayed benefits: Helps reduce turnover in long run.
The author defines steps to designing an effective staff incentive scheme such as:
- Analysis of culture, clientele etc.,
- Objective of scheme,
- Choice of mechanism,
- Pilot test.
The author concludes by stating that incentive schemes ought to be tailor made and cannot compensate for flawed products or procedures.
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