Published April 2, 2001

How to Set Up an Employee Incentive Plan for Small Business

Follow these 4-steps to set up an incentive plan that motivates your employees and enables you to reach your business goals.
  1. Identify the total incentive compensation for the employee for reaching specific goals over the course of a year. Pick a number, say $10,000. This does not include any team or group bonuses that you might want to add to promote team goals.
  2. Decide what things you want to have accomplished and set hard deadlines. For a manager, this could include performance metrix for the group they manage such as achieving specific milestones by date. For a technical person, it could be building software modules. For sales people, it could include the number of signed deals or dollar volume they bring in. It is important to tie specific individual goals with goals for the group. You could have an additional bonus compensation for everyone on a team if they collectively reach a goal.
  3. Assign a percentage weight to each item. For example:
    Weight Milestone
    ------ ---------
    25% Finding 7,000 sq. ft. of additional office space and
     getting everyone moved in by February 1.
    
    40% 10% per quarter for reaching $500k sales per quarter
    
    10% 2.5% per quarter for generating 50 qualified leads
     per quarter
    
    25% Signing 10 distribution deals worth $200k each
    ------ ---------
    100% TOTAL
    
    Additional Team Bonus: $2,500 for launching product by September 1
    
  4. If any specific milestone is not met, that percentage of the total incentive compensation is forfeited. So, in this example, if the person doesn't reach $500k in sales in Q3, they do not get 10% (or $1000) of the incentive compensation. If the team did not launch the product by September 1, nobody on the team gets the "Team Bonus".
This compensation structure provides motivation for employees to work on their individual goals as well as team goals.

Article Copyright 2001 Khera Communications, Inc. All Rights Reserved.