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Annual Incentive Plans & How to Make them Attractive to Your Employees

Annual Incentive Plans & How to Make them Attractive to Your Employees

Do Annual Incentive Plans fit into your business strategy?

It’s no secret that teams who are incentivized to do their best work are generally more engaged and motivated than those who aren’t. After all, if an employee feels that their contributions aren’t suitably recognized and compensated for, they are far less likely to perform well and are far more likely to look for employment elsewhere. 

Annual incentive plans can play an important role in increasing employee satisfaction levels and, in turn, help drive behaviors that will ultimately lead your business toward better outcomes. So, what exactly is an annual incentive plan, and how can you best develop one suited to your business? Let’s find out!

What exactly is an annual incentive plan?

An annual incentive plan outlines compensation to be paid to employees when they achieve certain performance-related goals over 12 months. This compensation is in addition to their regular salary — it may be an employee gift, cash incentive, or another type of bonus or reward

In an annual incentive plan, performance goals are outlined at the start of the year and may be centered on either individual, team, department, or even whole business performance. An annual incentive plan aims to motivate performance and align employees’ work with the company’s business goals and overall strategy. 

What defines a well-designed incentive program?

A well-designed incentive program will provide rewards that firmly align with your employee’s or team’s performance. There are several internal and external factors to consider when designing an incentive program for your business. To help with the process, try asking the following questions:

  • What internal incentives will best attract and retain new talent?
  • What will motivate employees to continue their good work?
  • What will work best to drive performance?
  • What business goals need to be achieved this year, and how can incentives help us get there?
  • What are the trends in our particular industry?
  • What are our direct competitors doing?

Ultimately, the structure of your incentive program will depend on the specific outcomes your business is trying to achieve — whether it be motivating staff to achieve set performance targets or simply rewarding individual achievements and milestones.

Developing an effective annual incentive plan

Developing an effective philosophy for your annual incentive plan is important to ensure that the performance measures you set are aligned with your business strategy. Having a clear line of sight for your employees is key — performance measures should focus on their efforts and map their accountability.

More than anything, your goal setting should be realistic. If your employees feel that a particular goal is unreasonable — and the likelihood of a reward is slim — they are not likely to be motivated to work towards it! 

Overall, your goals should be both achievable and motivational and should focus on a sustainable, not unrealistic, level of performance. It’s a good idea to consider historical performance levels, market expectations, and any impending projects. When developing a philosophy for your plan, ask yourself:

  • How solid are our budgeting and business planning processes?
  • What rewards will we offer for performance achievement?
  • What are the reward thresholds and maximums?
  • How will we set these parameters?

Types of performance metrics

Performance metrics are data used by employers to evaluate against a particular objective, such as sales objectives or employee productivity. Tracking these metrics is important as it can provide valuable information on what is driving profit and growth. When developing an incentive plan, it’s vital to consider a range of performance metrics. 

Metrics can be both financial and non-financial. Financial performance metrics may include earnings per sale, net income, and operating income. 

Non-financial performance metrics may include several smaller metrics, including health and safety measures, workplace diversity, and talent development. Examples include:

  • Strategic goals
  • Individual goals
  • Health and safety goals
  • Environment goals
  • Company-wide performance goals
  • Customer satisfaction goals

Other things to consider when developing an annual incentive plan

Here are a few more important things you need to consider or do when developing an annual incentive plan for your business:

  • Assess risks — Ensure that performance targets are both fair and attainable for your employees. Having your people reach beyond their means and take risks is not smart for them or your business.
  • Communicate effectively — The importance of communicating effectively cannot be overstated! For your incentive program to succeed, ensure it’s communicated effectively to all participants. 
  • Find what works — While it’s important that you consider vital elements such as ratios and risks when developing your annual incentive plan, you don’t need to follow a strict template or do what everybody else is doing. It is fine to use metrics that you believe will deliver true value for your unique business.

Internal incentives made easy with Runa’s API

Thanks to modern gift card APIs, it’s now easier than ever for businesses and service providers to implement successful employee incentive programs. With a single API, Runa gives you access to an extensive range of digital and prepaid gift cards, taking the stress out of choosing meaningful employee gifts and rewards. With us, your business will enjoy:

  • Simple integration process
  • Feature-rich, user-friendly portal
  • Fast ordering and delivery
  • Personalized employee gift experiences

Once connected, you’ll be able to manage your employee gifts through one handy platform — meaning less time and resources spent on managing incentives, and more on running your business. 

Distribute employee gifts at scale with Runa

Are you ready to propel your incentive program to the next level with the help of digital and prepaid gift cards? At Runa we’ve made managing employee incentives simple. Along with a market-leading gift card catalog, we give you access to all the tools needed to manage your programs. 

The great part? You enjoy the same simple process whether you’re sending one or thousands of digital gift cards. Keen to learn more about how we can save your business time, resources, and money? Get in touch to arrange a demo today!