Implement staff incentive schemes

Incentive schemes and the options

There is a wide range of incentive schemes, each with different costs. They include financial and non-financial schemes, individual and group schemes, short-term and long-term schemes.

The options

Financial incentives are useful for improving performance and can be self-financing.

Examples include:

• profit-related and share option schemes
• bonuses
• commission

Non-financial and indirectly financial incentives are:

• formal recognition/awards
• vouchers
• extra holidays
• gifts
• company cars

An incentive scheme can offer employees extra pay according to individual or group performance targets.

See the information on incentive schemes on the Acas website.

Tax

There are tax and National Insurance implications for most financial incentives and for non-financial benefits with an equivalent cash value. For more information, see our guide on taxable benefits.

Download information on PAYE and National Insurance contributions (NICs) from the HM Revenue & Customs (HMRC) website (PDF).

Other considerations

From 5 December 2005, you are required to treat your civil partner employees in the same way as married employees. For example, if you have a benefits package, such as pension survivor benefits, which is available to an employee's spouse, it should also be available to an employee's civil partner.

A civil partner who is treated less favourably than a married person in similar circumstances will be able to bring a claim for sexual orientation discrimination. Find out about your obligations under the Civil Partnership Act on the Department of Trade and Industry's Women and Equality website.

Some businesses allow staff to self-select from a range of benefits, eg staff choose between health insurance and a gym membership.

Promotion and training opportunities are not strictly incentives as they are ways of fulfilling business needs.

Negative incentives, eg threat of dismissal, may work in the short-term but they can decrease morale and loyalty.

Incentives can be used to reward targets which may be measured by quality, by quantity or by both.

Subjects covered in this guide

• Introduction
• The benefits of staff incentive schemes
• Incentive schemes and the options
• Perks and the options
• Setting up an incentive scheme for employees
• Ensuring the incentive scheme is successful
• Here's how a staff incentive scheme improved our business

 

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