CREATING MOTIVATION AND INCENTIVES STRUCTURES PURVI SHETH CEO, SHILPUTSI CONSULTANTS 20 TH JANUARY, 2012

INCENTIVES Saving money is great. So is having happy employees. How about both? Adding a few new benefits to your company's repertoire can make your business more attractive to prospective employees, help you retain the employees you want to keep and give you an edge against the competition. There may also be money-saving opportunities for both your business and your personal finances.

SOME NON MONETARY INCENTIVES 1. Day care support for working mums 2. Learning opportunities – larger jobs 3. Take work home 4. Bring home to work 5. Work out at work 6. Make work like family

OBJECTIVE OF MONETARY INCENTIVES Considering the need to remain competitive, innovative compensation strategies such as incentive programs are often developed in an attempt to align individual motivation and goals with the objectives of the organization.

ASSESSMENT OF THE RIGHT PLAN A properly designed and implemented incentive compensation program is a powerful tool that links an organization’s strategic and operational plans to the rewards it provides to executives. The right incentive plan properly implemented can motivate employees, increase productivity and allow the employer to differentiate pay given to high performers. It will help in Understanding company goals, relationships with peers and supervisors, willingness to take risks, creativity, self-improvement and communication.

DECISION MAKING PROCESS Entrepreneurs should strike a balance between budget - ranges based on current market conditions as well the general fitment of the firm eg – size of the organisation, growth rate prospects, critical employees etc - In 20’s age group – prompt commission on performance rates. - In 30’s age group - monetary benefits such as home loans at low interest rates. - In 40’s age group - a scheme which will automatically shift funds to more conservative investments as children gets closer to college age. benefits package/ retirement schemes.

DIFFERENTIATING REWARDS FROM MERIT PAY AND THE PERFORMANCE APPRAISAL In designing a reward program, a small business owner needs to separate the salary or merit pay system from the reward system. Financial rewards, especially those given on a regular basis such as bonuses, gains haring, etc., should be tied to an employee's or a group's accomplishments and should be considered "pay at risk" in order to distance them from salary.

DESIGNING A REWARD PROGRAM Identification of company or group goals that the reward program will support Identification of the desired employee performance or behaviors that will reinforce the company's goals Determination of key measurements of the performance or behavior, based on the individual or group's previous achievements Determination of appropriate rewards Communication of program to employees

TYPES OF REWARDS : VARIABLE PAY Variable pay - can be tied to the performance of the company, the results of a business unit, an individual's accomplishments, or any combination of these. It can take many forms, including bonus programs, stock options, and one-time awards for significant accomplishments. According to some experts, Bonuses are generally short-term motivators. By rewarding an employee's performance for the previous year, say critics, they encourage a short-term perspective rather than future-oriented accomplishments.

PROFIT SHARING Profit-sharing refers to the strategy of creating a pool of monies to be disbursed to employees by taking a stated percentage of a company's profits. The amount given to an employee is usually equal to a percentage of the employee's salary and is disbursed.The idea behind profit-sharing is to reward employees for their contributions to a company's achieved profit goal. It encourages employees to stay put because it is usually structured to reward employees who stay with the company; after a business closes its books for the year.

STOCK OPTIONS STOCK OPTIONS Previously the territory of upper management and large companies, stock options have become an increasingly popular method in recent years of rewarding middle management and other employees in both mature companies and start-ups. Employee stock-option programs give employees the right to buy a specified number of a company's shares at a fixed price for a specified period of time (usually around ten years).

STOCK OPTIONS Like profit-sharing plans, stock options usually reward employees for sticking around, serving as a long-term motivator. Once an employee has been with a company for a certain period of time (usually around four years), he or she is fully vested in the program. If the employee leaves the company prior to being fully vested, those options are canceled. After an employee becomes fully vested in the program, he or she can purchase from the company an allotted number of shares at the strike price (or the fixed price originally agreed to). This purchase is known as "exercising" stock options.

DESIGN INCENTIVE SCHEMES Make a case for or against employee stock options in your company Design creative incentive schemes ( monetary & non monetary) for your company

ENTREPRENEURS’ TAKE The best employers strive to help workers strike the right balance between work and enjoying life away from the office so they are re-energized when they return each day.

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