Small Business

How to Set Up an Incentive Program


A program that rewards staffers for new ideas can boost your business, but it's important to make it as transparent as possible

I belong to a business group that manages different businesses related to the construction and tourism sectors. Lately we've wanted to reward anyone who comes up with a new idea or business that we as a group decide to carry out. How can we structure some kind of monetary or other consideration for our innovative and creative members? —V.M., Tacoma, Wash.

Rewarding creativity is imperative, yet often businesses and organizations overlook this fact and suffer accordingly. Taking the extra time and effort to dream up a novel venture or research an alternative process is real work. Usually creative individuals who come up with new ideas do some or all of the work on their own time, under their own initiative.

All this should be not only recognized but compensated. If it isn't, there's a risk of disillusionment from the very team members the organization should be nurturing and grooming for advancement. For instance, if an employee brings forth a terrific idea that generates sales or saves money but is not rewarded for it, he or she may become discouraged and decide not to bother in the future.

Finding a Meaningful Reward

Your challenge is to find the right value for the idea and reward the creator appropriately, says Ken Keller, president of Renaissance Executive Forums of North Los Angeles County, a networking and resource group for chief executives. "All too often the rewards are what the givers think the receiver might like, not what they know the receiver wants. Many organizations reward people with tickets to sporting events when the person being rewarded really wants a dinner out at a restaurant of his choosing," he says.

Janet Attard, small business consultant with business information Web site BusinessKnowHow.com, agrees. "Consider what would be most meaningful to the people who would be submitting ideas," she says.

At your next business meeting, propose establishing a rewards program and get everyone's input. Survey everyone interested in creating new group-business ventures and have them specify what they would like for a reward. Cash might be first on everyone's list, but it may be difficult to determine up front how much a specific idea is worth. Plus, receiving a fee will also increase the awardee's tax liability.

Keeping the Pipeline Full of Ideas

Giving more traditional rewards—such as gift cards, baskets, coupons, or discounts—might work better, Keller says. Gift cards in $50 increments could be given out monthly for the best new idea, or the group could decide to give out the cards only for the truly outstanding ideas that come up occasionally. Just knowing there is a reward available will stimulate creativity and perhaps some competition.

"While it may seem like you're giving up a lot of money, keeping the pipeline full of ideas is the ultimate objective," Keller says. If an idea is a one-off, one gift card would be a fair reward. If an idea generates revenues over a longer period, you might consider giving the originator $50 gift cards every month over the first six months or year of the business venture. "What is $400 in gift cards for an idea that brings in $10,000?"

Avoiding Charges of Unfairness

Talk with your group about whether people want to have different incentive levels for different types of ideas. "For instance, they might want to offer one type of incentive for an idea for a new promotional campaign that brings in a one-time bump in profits, and a totally different incentive for an idea that results in a new business that could bring in significant revenue on an ongoing basis," Attard says.

Make sure the group has some input, such as a vote, on when an idea deserves a reward and how the rewards are meted out. If the reward program is not carefully crafted, there will be dissension and charges of unfairness. "The goal is to forestall problems arising from someone claiming to have come up with an idea the group thought of on its own," Attard says. She recommends you set down written guidelines for the program and have them reviewed by an attorney before you launch. If some members feel the program is unfair, it won't last long and could be more trouble than it's worth.

Finally, don't forget to include group recognition when a reward is being handed out. Sometimes a pat on the back from one's peers is just as important—or more—than the more tangible compensation.

Karen E. Klein is a business journalist who covers small-business issues for several national publications. She writes her Smart Answers column twice a week.

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