10 top tips for employee incentive schemes

A happy workforce equals a happy business, so you may want to consider putting in place an incentive scheme for your employees.

Here are our top tips for creating such a scheme.

Understand your reasons for introducing an incentive scheme  

Incentive schemes can help increase earnings for your employees, increase output, give greater flexibility of labour, gain efficiency in working methods, reduce absenteeism, lower staff turnover and reduce the need for overtime.

Be clear about the scheme participants  

Who is the scheme for? Will it apply to skilled, semi-skilled or unskilled labour, or an individual, working group or department?

Match your work culture  

Before you introduce the scheme, look at the proportion of bonus to salary – is it so high as to attract risk seekers or is the proportion so low it is likely to have little influence?

Make sure the incentive scheme is suitable  

Think about whether the quality and quantity of your employees’ output are governed to a large extent by factors outside their control. Also, consider whether the workload is subject to seasonal variations. Will the incentive be connected to output, transactions, margins, profit…? Review the current processes and methods for maximum effectiveness.

Design the scheme  

Carry out an analysis of the costs, benefits and effects and then decide how much you are willing to spend on the scheme. Also, decide whether you want to include employees and their representatives in the design of the scheme. You should test the scheme fully and then pilot it to allow you to make necessary changes. Think also about how disputes concerning the scheme will be dealt with.

Keep it simple  

Make sure it’s easy for managers and employees to understand how pay is calculated. The scheme should contain as many objective factors and as few subjective factors as possible, and the ‘rules’ should be known to everyone and not changed arbitrarily.


The goals set out in your scheme need to be attainable. If you already reward better performance through higher basic pay, can everyone who works better and harder still achieve a bonus?

Pay on performance  

The incentive payouts should be seen as dependent on the performance of the individual (or group), rather than as an entitlement. The frequency of payments should also help staff to relate their reward to particular efforts.

Manage change  

You will need to decide early on who will manage the incentive scheme. The scheme should be kept under constant review and modified, where necessary. Your payroll system will need to be able to administer the scheme competently.

Monitor performance  

You should carry out regular reviews of your scheme and make adjustments, where necessary. You should look at whether you are achieving objectives and receiving a proper return on monies invested. Look at whether the scheme has increased or decreased wage differentials. Finally, make sure information is distributed to all employees on how the scheme is working and its results.

Updated 1st June 2016