HR MANAGEMENT - Types of Team Based Incentive Plans

Types of Team Based Incentive Plans

by Lisa McQuerrey, Demand Media

Incentives inspire creativity and teamwork.

Team-based incentive plans are initiatives designed to encourage and reward exceptional levels of professional achievement. You can use incentives in your small business as motivators for staffers to work collectively to earn monetary and non-monetary rewards. It is also a way for small business owners to boost overall productivity and earnings while simultaneously rewarding employees for a job well done. The objective of team incentives is to encourage group goal-setting, collaboration and teamwork.

Profit Sharing

Profit sharing is a team-based incentive plan in which you pay your employees a percentage of your company’s overall profits. Profit sharing builds a sense of ownership among employees and encourages greater team performance levels. Staffers know that the better their performance, the better the business’s financial picture, and the higher their own potential cash rewards.

Gain Sharing

Similar to a profit-sharing plan, gain sharing is a team incentive in which you reward employee groups for measurable, non-financial achievements in pre-established areas. For example, teams may enjoy a bonus if customer satisfaction levels rise a certain percentage above figures from the previous year. The focus of this type of incentive is for employees to recognize the role they play in continually moving your small business forward in key areas.

Goal-Based Incentives

Goal-based team incentives reward employees for reaching specific goals. For example, topping a certain dollar amount in sales, landing a specific number of contracts or hitting a membership recruitment figure. The approach encourages teamwork and gives employees a firm target to aim for. This incentive plan is good for small businesses because it promotes team work and collective effort, and you only issue the reward if the goal is met.

Merit-Based Incentive

A more subjective approach to incentive programs is the merit-based incentive approach. Following this model, you reward employee teams for effort, regardless of outcome. For example, if your marketing employees stay late every night to finish a major advertising campaign that doesn’t perform as anticipated, their dedication and effort are still recognized. Because of the discretionary element of this type of incentive, it can be a challenge for employees to know what they aiming for or how they will know when their efforts or actions are viewed as “good enough” to merit reward.

Financial vs. Non-Financial Incentive

It’s up to you, as the business owner, to decide what type of incentive you want to offer employee teams. If cash rewards are too much for your small business budget, other incentives to extend include paid time off, free company services or merchandise, or preferred parking or office space. Ask employees what they consider to be a viable and worthwhile reward and consider if it fits your budget.