Incentive compensation: how to build loyalty, retain and reward employees

Employee loyalty and retention are essential to a company's success. Organisations are constantly looking for effective strategies to keep their staff engaged and motivated. Incentive compensation is an increasingly popular and powerful tool for achieving this.

In this article, we'll take a look at the different types of incentive compensation, and how companies can use them to both retain and reward employees.

Understanding incentive compensation

Incentive compensation goes beyond the traditional salary structure and encompasses various benefits and rewards designed to motivate employees.

Incentive pay, or variable pay, is a remuneration structure based on the organisation's overall objectives and performance. Unlike fixed remuneration, i.e. the employee's salary, incentive pay offers employees the opportunity to obtain additional rewards based on their individual or collective performance.

From the organisation's point of view, this pay structure can encourage employees to improve their productivity and contribute to the company's success. By linking pay directly to performance, companies can encourage their employees their employees to push themselves upwards, fostering a culture of performance and achievement.

There is therefore a psychological bias that needs to be taken into account when setting up an incentive compensation plan. It will be important for companies to find the lever that will be encouraging and motivating for employees, a model that pushes them to excel while appearing achievable. If this lever is too difficult to activate, the other side of the coin could be a loss of motivation for the employee.  That's why some positions are more suited to this type of achievement as their objectives can be more easily quantified, like sales positions for example.

Choosing the right incentive programme

It is therefore clear that incentive compensation is a strategic choice for a company. It needs to be carefully thought through, particularly in terms of the form it takes and its recurrence.

Short-term or long-term reward?

Perhaps the first question to ask is the timing of the incentive. Should it be short-term for a quick reward or long-term for a long-term commitment? Finding the right balance between short-term rewards and long-term benefits will therefore be key.

To do this, you need to understand your employees and talk to them properly about participation plans.

For example, a one-off effort may be rewarded with one-off attention, while a long-term commitment will be rewarded with greater security in the incentive.

Performance-based bonuses‍

Performance bonuses linked to individual or collective achievements can be a powerful motivator. These can include meeting sales targets, achieving project milestones or exceeding performance indicators. In this approach, the bonus is more generally linked to an employee's individual performance. A bonus based on performance can not therefore be achieved without defining objectives which will serve as a guideline for employees. If the objectives are not clearly stated and subsequently shared with the employee, he or she may be entitled to claim his or her bonus in full.

Commission structures

For sales-oriented roles, commission structures linked to sales performance can establish a direct link between effort and reward. The more an employee sells, the more they are rewarded. The desire to excel is therefore constantly renewed. This approach is generally based on a percentage of the amount of the sale made by the employee.

Profit-sharing schemes

Profit-sharing schemes are designed to encourage employees to share in the success and capital of the companies they work for. These schemes are present in all European countries, but differ in their form and implementation. They covered almost 9 million French employees in 2018. France tends to facilitate their implementation and management, particularly for small companies, where coverage is low. Participation is even compulsory for certain categories of company. Tax incentives have also been introduced to encourage participation.

Stock options and share grants - BSPCE

Giving employees a stake in the company through share options or share awards can foster long-term commitment and a shared vision of growth. In France, stock options are known as BSPCE. These BSPCEs are a right to buy shares in the company at a given price and at anytime - while complying with the acquisition conditions of the company. BSPCEs enable young companies to incentivise their employees without spending money in the short term. In a win-win situation, it is therefore in the employee's best interests to stay in the company so that their shares increase in value. A BSPCE plan must be frequently adapted to the company's development and, above all, must be explained to employees. Without understanding, there will be no additional motivation.

Non-monetary incentives

As well as financial rewards, non-monetary incentives such as holidays, flexible working hours or wellness or sports programmes can contribute to overall job satisfaction. The working environment has changed significantly in recent years, and many employees expect their employers to be flexible when it comes to working remotely, in other cities or even in other time zones. Well-being and mental health have also become considerations that employers cannot ignore. They may offer a contribution towards a sports membership, finance alternative medicine sessions or even extend the statutory period of parental leave (for women and men). Some big companies, like Netflix, go so far as to introduce a system of unlimited holidays.

There are also a number of schemes to help companies commit to the public interest. Wenabi, for example, offers a variety of solutions so that every company can take action at its own level by providing practical help to associations in need. Employees can choose which cause to dedicate one or more working days to.

How to set incentive compensation up

Using automated software

Integrating technology into your compensation strategy can streamline processes and improve efficiency. So you can choose a software package that will support you in setting up an incentive policy, from A to Z, taking account of legal and administrative considerations.  

Building employee loyalty with Kassis by Kriptown

As we were talking about the possibility of using a software solution, let's take a look at one in particular.

Kriptown, which is also a partner of ScaleX Invest, is committed to supporting the implementation of profit-sharing programmes for startups and tech companies. With its Kassis solution, every company can find the scheme that's right for them, whether it's a BSPCE, a share subscription warrant (BSA), a benefit in kind or a profit-sharing bonus. In a word, Kassis offers turnkey distribution plans, aligned with each individual's contribution.

A company can therefore opt for several options. It will create its own distribution plan, working hand in hand with Kassis. Once this strategy has been put in place, the Kassis team will configure the company's personalised space. The incentive operation is then ready to be launched. Thanks to its 100% digital solution, employers benefit from support throughout the implementation process, boosting their employer brand. Employees, for their part, build up a portfolio of easy-to-manage tokens (digital assets), which become a form of additional remuneration to their salary.

Take feedback from your employees

Involving employees in the decision-making process strengthens their sense of belonging. But it is also important to gather information after the incentive programme has been implemented. This will ensure that you don't take your actions for granted, and that you are always questioning their implementation, with the aim of improving them, enhancing them or replacing them.

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At the end of our exploration of incentive compensation, it becomes clear that a well-designed and well-executed plan, incorporating various types of incentives and keeping abreast of future trends, can make a significant contribution to employee loyalty and retention, as well as overall job satisfaction. By being transparent and understanding the specific needs of your staff, you can create a culture in which employees feel valued and rewarded.

At ScaleX Invest, we have developed a score to determine a company's potential to set up a profit-sharing scheme. A high score highlights a company's maturity and its potential need for banking or consultancy services to secure its talent. The score helps bankers target prospects for such services.