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How to Create an Employee Incentive Program

NEW YORK (TheStreet) -- The smartest and most successful business owners realize that they need to recognize their employees when they do a good job. Employers who take all of the credit typically attract people who can't get a job with anyone else, and eventually the business crumbles because new ideas no longer bubble up and service collapses. Bankruptcy court isn't far behind.

I had a client who meant well in starting an employee-recognition program. He gave out small stone gargoyles to the employees of the month, of which he was the sole nominator and voter. He loved gargoyles, and he thought that employees would appreciate hearing from the boss that they were the best for the month.

Unfortunately for my client, the employees took the gargoyles and wrote nasty things on them and mercilessly teased the winners. The award became a joke, and the president not only had egg on his face, but he was very upset with his employees for their lack of appreciation for his efforts.

As the saying goes, "The road to you-know-where is paved with good intentions." The owner's heart was in the right place, but his thinking was totally off-base. A good rewards program involves the employees and gives them something meaningful.

The award must be perceived as having a value and being desirable. Think about when you were a kid and your parents would reward you for making the honor roll. My parents would let us go into the toy store or sporting goods store and pick out anything we wanted for $25 or less.

In the 1960s and '70s, you could get something meaningful for $25. Actually, you can still get something good for $25 at the dollar store or on close-out from a variety of store. The key is understanding what will motivate your employees.

I sent an email to all of my clients' employees and asked them what, outside of cash, would be a meaningful award to receive for good work, and who should determine who wins it. Some of the people responded that cash was the only meaningful award, but I explained to them that cash is great, but is quickly forgotten once it is given and taxes are taken out.

The responses ranged from a paid weekend somewhere to gift certificates for a restaurant to sports tickets. What we decided was that the first time an employee won they would receive a gift certificate to the restaurant of their choice, whose bill wouldn't exceed $100. If a worker won twice in one year, they would get a free weekend away that couldn't exceed $500.

The group decided the winner would be decided by the employees, and workers could not vote for themselves. They created criteria for winning, which had a point system. The criteria were:

  • Punctuality: Coming to work on time.
  • Teamwork: Offering to help others.
  • New Ideas: Every week, the employees met as a group and talked about company problems, and ideas were discussed and implemented.
  • Customer Satisfaction: Emails or letters from customers lauding performance.

The incentive program was a huge success. The reason it was a hit was because employees had a hand in determining the structure. Employees, whether they are shareholders or not, need to feel that they have some control over what happens to them every day.

Here are some sources for ideas for incentive programs:

Employee reward programs should be meaningful, and management should be able to stand in the glow of the success of the employees. If you don't have an employee-recognition program, you should consider one -- it is one of the best ways to boost morale and retain employees.

Kramer is the author of five business books on topics related to venture capital, management and consulting. He is a faculty member at the Wharton School of Business at the University of Pennsylvania and the veteran of over 20 startups and four turnarounds.

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