Create an incentive plan that motivates employees with these 7 steps

"Profit sharing, stock options, and employee ownership are popular tools, and in many cases they're useful. Employees generally appreciate them. But here's the catch: Appreciation doesn't equal action. And more importantly, satisfaction isn't engagement. Too often, these programs fail to move the needle where it matters most: day-to-day performance. If your performance compensation doesn't change performance, it's not performance compensation."

"Business is a team sport. And, like any sport, performance hinges on clearly defined teams. For small companies, this often means everyone is part of one incentive group. For larger companies-think several hundred employees or more-the game changes. Here, success lies in breaking the business into smaller, functional units-branches, departments, value streams, or what appliance company Haier refers to as "microenterprises." Once defined, each team can be treated like its own business, with an incentive structure tailored to its unique goals and challenges."

"The best incentive plans begin with a 360-degree understanding of your business. That means gathering: Customer insights. What do your customers truly value? Asking them this question directly, in a real conversation, deepens relationships and boosts repeat and referral business. Employee input. What opportunities or roadblocks do they see on the front line? This step transforms employees from task-doers to trusted partners. Manager perspectives. Do their views align with employees'?"

Incentive plans must change employee behavior to produce better business outcomes; appreciation alone does not drive action or engagement. Profit sharing, stock options, and ownership often please employees but frequently fail to improve day-to-day performance. Effective incentives require team-level design, breaking large organizations into functional units treated like independent businesses with tailored incentives. Plans must be built from a 360-degree understanding, collecting customer insights, employee input, and manager perspectives. Aligning metrics and incentives to frontline drivers and daily behaviors transforms satisfaction into measurable performance and fuels sustained business growth.

Read at Fast Company