Incentives and Bonus

Incentivos y Bonus

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INCENTIVES AND BONUS

(*) What?

· Incentive: Compensations based on work performance or financial achievement. Money or intangible. Its purpose is to look for something to motivate people to achieve something. If it’s regular, it becomes a bonus. (Shorter, motivational: tell in advance so they will do it)

· Bonuses are a financial reward. It is an incentive (something that push you in order to do something, that make you work). Bonus can be linked to the expectancy theory. Monetary. Always an incentive. Backward perspective → achievement (you’ve done)

(*) Why?

Performance pay increases performance either directly or indirectly

- Directly: people work in order to get the compensation · Productivity · Motivation

- Indirectly: people do not work for the compensation, but for getting satisfaction (“well done”, satisfaction of achieving something)

PERFORMANCE = MOTIVATION X ABILITY

(Incentives work on motivation. Incentives are small push in a certain area for a certain period of time; the most effective is between 3 and 18 months. More than that, incentives tend to lose its potential as people start seeing it as something normal or expected rather than its real purpose of motivating.)

(*) Advantages of incentives

· Increase performance (Motivation)

· Increase retention (reduce turn over)

· Cost saving (only paid once achieve: make sure goals are met)

· Focus on company goal

→ General principle: it all begins with motivation. You need to achieve the basic needs before going to the next level.

** Where to start? GOALS (not reward nor financial Impact (end))

(*) Basic incentives

INDIVIDUAL

- Advantages

· No independent

· Individual contribution reward

· Person is responsible for own achievements

- Disadvantages

· Cost (time and money) can be high

E.g.: percentage gained by the employee of the month

GROUPS

- Advantages

· Cooperation is essential or desired

· Careful about free riders

- Disadvantages

· Frustration in group

E.g.: reception: if the team reach the department of the month, they gain an extra percentage

* High cost on time and money: time (due to you have to measure individually one by one (reports, appraisals, etc.) money (imagine you as a hotel gain 10€, you have to pay expenses and a percentage to the employees so at the end the real profit is.

There is not a better or a worse (group/individual) incentive profile, it all depends on the desired goal, the situation, the people involved, the costs and its budget, etc.

→ MOTIVATIONAL FORCE

Motivation is the sum of the products of the valences of all outcomes, multiplied by the strength of expectancies that the action will result in the achievement of these outcomes

M =

(*) First theory model CHECK ON SLIDES PLUS

(*) Equity theory (Adams) CHECK ON GOOGLE

Based on performance

· Inequity: feeling of not being treated equally

When somebody needs something, the individual expects something back.

→ Where to start?

Most programs are designed with the end in mind = GOAL (what do we want to achieve by those incentives?)

How can I get it? How can I motivate employees to reach those goals?

· Reward

· Financial impact on company

(*) Goal setting

- For the company: why are you creating the incentive? What is its purpose?

- For the participants:

· Participation: who? (employees must be part of the full process of reaching the goal)

· Specificity: how? (goal must be clearly stated and properly information given to the employees in order to make sure the employees do not misunderstand. If they would, the goal would be missed)

· Feedback: how I give to them? (regular feedback is essential in promoting motivation)

· Challenging: will it be challenging? (if it is not challenging enough or everyone can reach it easily, people lose the interests. The more challenging something is, the more effort people put on it)

· Commitment: will they be committed? (participants must be personally connected to the goal, feel as the goal is a way to reach something positive for the company and for the employee)

(*) What do you need to take into consideration while creating your incentives?

- Measure: Performance Standard (performance STD. Quantifiable)

(Making sure the performance standards are clear. What is going to be measured and how?)

- Monitor: how is everyone doing

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