Introducing an incentive pay scheme - checklist

Introducing an incentive pay scheme - checklistPay is an important issue for you and your employees. Incentive pay can form a key part of your pay offer if you get your scheme right.

  • Clarify the purpose of the scheme. Do you want to attract and retain key employees or drive performance improvements in a specific area?
  • Decide which employees should take part - for example, employees who are difficult to recruit, or the sales team. Ensure that the scheme does not discriminate unfairly.
  • Decide how long the scheme should run: a permanent scheme to improve recruitment for instance, or a six-month sales drive.
  • Decide the most appropriate form of incentive. Consider commissions, bonuses, performance-related pay increases and share options.
  • Decide what scale of incentive you need to offer to make an impact; check whether short-term, smaller incentives will be more effective.
  • For shares or options, investigate whether any tax-efficient schemes meet your requirements and justify the administrative burden involved.
  • Decide how performance will be measured - aim for clear, quantitative targets related to your objectives, rather than subjective assessments.
  • Think through any possible adverse effects such as employees ignoring tasks which do not count towards targets, or loopholes that might allow employees to work the system.
  • Review whether your scheme will deliver the results you hope for. Confirm that the benefits of achieving your targets will justify the cost.
  • Make sure the scheme will provide employees with a basic salary that meets the requirements of the National Minimum Wage and National Living Wage.
  • Explain the scheme to your employees, and encourage comments and suggestions; ensure that they agree that the scheme is fair.
  • Negotiate and agree realistic targets or performance standards.
  • Be prepared for negative reactions from employees who are excluded.
  • Once the scheme has been introduced, monitor its effectiveness; be prepared to make changes if it is no longer delivering results.

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.