This document provides an overview of incentive programs for employees. It defines various types of incentives and discusses the purpose, principles, best practices, and factors to consider when designing incentive programs. Some key points include: the purpose of incentives is to improve motivation and tie pay to performance; principles include insurance, rationality, and deferred compensation; best practices include setting achievable goals and rewarding behaviors; and factors to consider are program cost, ability to measure results, and brand exposure. Concerns about incentive programs include potential unethical actions, pay inequality, and lower intrinsic motivation.

1. WII FM-the employee incentive
radio station
by Toronto Training and HR
May 2013

2. CONTENTS
5-6 Definitions
7-9 Purpose of incentive programs
10-11 Types of incentives
12-13 Dimensions of incentives
14-15 Factors of incentive pay
16-18 Principles of incentive pay
19-20 Best practices for using incentives
21-23 Executive incentives
24-26 Conditions for effective use of incentive programs
27-28 Caveats for administration of incentive programs
29-30 Reasons for implementation
31-32 Motives for profit sharing
33-34 Possible conditions affecting the link between profit sharing
and earnings
35-36 Things to consider when designing incentive programs
37-38 Concerns around incentive programs
39-40 How and why incentive programs work
41-42 Attendance incentives
43-44 Types of incentive companies
45-46 Measures to evaluate success
47-48 The situation in Nigeria

3. Page 3
Introduction

4. Page 4
Introduction to Toronto Training
and HR
Toronto Training and HR is a specialist training and
human resources consultancy headed by Timothy Holden
10 years in banking
10 years in training and human resources
Freelance practitioner since 2006
The core services provided by Toronto Training and HR
are:
Training event design
Training event delivery
Reducing costs, saving time plus improving
employee engagement and morale
Services for job seekers

5. Page 5
Definitions

6. Definitions
• Bonuses
• Incentives
• Incentive schemes
• Motivation
• Productivity
Page 6

7. Page 7
Purpose of incentive
programs

8. Purpose of incentive programs
1 of 2
• Improve motivation
• Tie pay to performance
• Recognize differences in
employee performance
• Increase competition among
employees
• Attract and retain productive
employees
• Reduce absenteeism
• Reduce idle time
• Reduce or control costs
Page 8

9. Purpose of incentive programs
2 of 2
• Utilize equipment more
effectively
• Relate increases in
compensation to increases in
productivity
• Avoid additions to employees
• Create uniform processing
costs
• Direct efforts toward achieving
organizational objectives
Page 9

10. Page 10
Types of incentives

11. Types of incentives
• Natural
• Artificial
• Extrinsic
• Intrinsic
Page 11

12. Page 12
Dimensions of incentives

13. Dimensions of incentives
• What is being measured,
inputs or outputs?
• What period of performance
does the payment reward?
• Does the payment reward an
individual’s performance a or
does it relate to
team/organizational success?
• Is measurement based on a
single factor or a multiple
factor?
• What form does the payment
take?

14. Page 14
Factors of incentive pay

15. Factors of incentive pay
• Moral hazard
• Adverse selection
• Need to induce profitable
cooperation in organizations
• Need to counteract costly or
unproductive institutional
and/or regulatory constraints
Page 15

16. Page 16
Principles of incentive pay

17. Principles of incentive pay 1 of 2
• Insurance
• Rationality
• Certainty equivalence
• Dual performance measures
• Risk premium
• Intensity of incentives
• Optimized performance
• Efficiency in the evaluation
budget
• Informativeness
Page 17

18. Principles of incentive pay 2 of 2
• Equal compensation intensity
• Deferred compensation
• Group compensation
Page 18

19. Page 19
Best practices for using
incentives

20. Best practices for using incentives
• Achievable goals set by the
employee
• Programming elements that
address those goals
• Programming that is directed
to an incentive type
• Utilizes both extrinsic and
intrinsic reward structures
• Rewarding behaviours, not
outcomes
Page 20

21. Page 21
Executive incentives

22. Executive incentives 1 of 2
• Executives are risk-averse
• Complexity and ambiguity destroy
value
• The longer you have to wait the
less it is worth
• It’s all relative-fairness is
fundamental
• People don’t just work for the
money
• The key motivation of a long-term
incentive plan is recognition
Page 22

23. Executive incentives 2 of 2
• Performance pay has a cost-be
sure you are getting value
• Keep it short, sweet and simple
• One size does not fit all-know your
people and pay them accordingly
• Money is only part of the deal-and
recognition matters as much as
financial incentives
• Be realistic about how variable pay
can be from year to year
Page 23

24. Page 24
Conditions for effective
use of incentive programs

25. Conditions for effective use of
incentive programs 1 of 2
• Direct relationship between
effort and output
• Readily identified units of
output
• Even and continuous work flow
• Standards of performance
• Quality standards
• Measurement systems
• Opportunity for cost reduction
• A good unit cost system
Page 25

26. Conditions for effective use of
incentive programs 2 of 2
• Sufficient financial inducement
• Reasonable time spans for
payment
• Reliable stable technology
• Selective application
• Top management commitment
Page 26

27. Page 27
Caveats for administration
of incentive programs

28. Caveats for administration of
incentive programs
• Incentive punishes
• Incentive schemes rupture
relationships
• Incentive programs ignore
reasons
• Incentive schemes discourage
risk taking
• Incentive schemes undermine
intrinsic motivation
Page 28

29. Page 29
Reasons for
implementation

30. Reasons for implementation
• Motivate employees
• Increase sales
• Increase brand exposure and
awareness
• Support product launch or
promotion
• Increase customer loyalty
• Attract new customers
Page 30

31. Page 31
Motives for profit sharing

32. Motives for profit sharing
• The substitution argument
• The human capital argument
• The worker behaviour
argument
Page 32

33. Page 33
Possible conditions affecting
the link between profit
sharing and earnings

34. Possible conditions affecting the
link between profit sharing and
earnings
• Employee participation in
decision-making
• Establishment size
• Pre-existing compensation
levels
Page 34

35. Page 35
Things to consider when
designing incentive
programs

36. Things to consider when designing
incentive programs
• Program cost
• Return on investment
• Ability to measure results
• Program flexibility
• Ease of use/time to administer
• Recipient experience
• Redemption rate
• Brand exposure
Page 36

37. Page 37
Concerns around incentive
programs

38. Concerns around incentive
programs
• Unethical actions
• Pay inequality
• Lower intrinsic motivation
Page 38

39. Page 39
How and why incentive
programs work

40. How and why incentive programs
work
• Incentive programs improve performance
• Incentive programs engage participants
• Incentive programs attract quality
employees
• Long-term programs outperform short-
term programs
• Executives and employees value being
rewarded
• Quota-based rewards programs work best
Page 40

41. Page 41
Attendance incentives

42. Attendance incentives
• Attendance bonuses
• Lotteries
• Adjustments to profit-sharing
• Well-pay plans
• Group-based approaches
Page 42

43. Page 43
Types of incentive
companies

44. Types of incentive companies
• Full-service performance
improvement companies
• Full-service incentive
companies
• Incentive fulfillment
companies
Page 44

45. Page 45
Measures to evaluate
success

46. Measures to evaluate success
• Employee retention
• Performance improvement
• ROI
• Sales increase
• Media coverage
• Brand exposure
Page 46

47. Page 47
The situation in Nigeria

48. The situation in Nigeria
• Financial and non-financial
components of compensation
• Relevant incentive programs
• Type of incentives that do exist
• What should managers do
Page 48

49. Page 49
Conclusion and questions

50. Page 50
Conclusion and questions
Summary
Videos
Questions