Incentive compensation plans offer rewards or recognition in exchange for performance, such as customer reward programs or commissions for employees. They can boost employee morale and retention, and are commonly used in industries with high turnover rates. Mary Kay Cosmetics is an example of a company that uses this type of plan.
An incentive compensation plan is a program that offers a reward or recognition in exchange for performance. There are several varieties of these reward and recognition plans. Commonly recognized business strategies, such as customer reward programs or commissions paid to employees, are examples of the incentive compensation plan in place.
Customer reward programs are a common form of incentive compensation plan. These programs are designed to influence customer behavior or promote purchases of a particular product or service. This form of compensation plan may include cash incentives, certain sales or promotions, or discounts for customers who refer new customers. The basic goal of this strategy is to create an environment where the customer wants to buy a product or promote a service in order to receive a reward. It’s a common strategy among credit card companies and retailers to encourage buying behavior.
In the corporate world, incentive programs are often used for employee motivation. When an employer wishes to boost employee morale, he can introduce an incentive compensation scheme to motivate staff. Incentives sometimes include non-monetary rewards such as employee and family events, company vacations, or other rewards. In some cases, one-time monetary rewards may also be offered. A common example is the employee monthly program used by many companies.
The incentive compensation plan can also be used for employee retention. In companies that experience a high employee turnover rate, management may choose to implement employee retention programs. Employees who remain with the company for a period of time may be offered incentives in the form of a salary increase, monetary bonus, or public recognition of the individual’s service and loyalty. Companies that use this type of incentive program often come from industries where competing companies tend to recruit employees with experience away from other companies.
Another form of incentive compensation plan is the employee incentive program. Retail companies sometimes offer employees the opportunity to benefit from demonstrating sales ability by offering commissions. A commission is a monetary reward for the sale. In addition to commission-based compensation programs, some companies also offer other incentives, such as award ceremonies, travel opportunities, or automobiles. A well-known example of a company that uses this type of incentive compensation plan is Mary Kay Cosmetics. Cosmetics company Mary Kay gave each of its top five salespeople a pink Cadillac in 1969 and continues to offer incentives to employees with high sales levels.
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