How To Reward Employee Performance Without Exceeding Merit Budgets


Rewards and incentives have been proven to increase productivity of employees in a company. Companies have long recognized this, and are implementing various reward and incentive schemes for employees. In a company that is part of a big industry (such as electronics, automotive and the like), sometimes the non-monetary rewards are the defining factor in keeping employees on board, and not the salaries. Salaries can be benchmarked, or to some extent mandated by law (such as by the minimum wage laws per state or locality), but incentives are inherent to the company.  

You will be surprised that for some employees, the best rewards are not the monetary ones. This is true when the salary of the employee is already at a comfortable level, such that the salary can fully cover basic needs plus savings. Thus, a monetary reward does not really attract them anymore to go the extra mile in their work.  

Whatever the case, the constraint will always be the budget. A company has limited budget for employee incentives, but it does not mean that your creativity should be limited too. Following are some tips to reward employee performance without exceeding merit budget. 

Use a forced ranking system. Your department is given a fixed merit budget. Dividing the merit budget equally among the employees will not do justice to employees who deliver better than others. Also, employees who do not perform well will act as free riders, as they get an equal share of the merit budget pie, anyway. This kind of performance incentive is still being practiced in some government agencies, and is one disincentive to performing well.

The best way to do this is to force rank your employees. With the same position across departments, supervisors will choose who among the employees should get the biggest cut of the bonus, given the accomplishments of each candidate. The ranking system will go on per position, until the total "pie" or budget has been consumed. This will make sure that outstanding employees will get the largest share, which is due to them anyway.

One disadvantage of this system is if the positions are not homogeneous within the department. For example, ranking an administrative staff against a technical support staff will definitely not match the performance of respective teams. That is why the division of employees is also important. 

Use a point system. Here's how a point system works. Performance can be appraised every quarter, in time with the quarterly reports or projects of the employees. Then, at the end of the year, the one with the highest points will get the bigger portions of the merit budget. This will eliminate biases in the forced ranking, because it is simply a numbers game. The only problem is how to assign points to a particular accomplishment.

Aside from quality of work, timeliness and accuracy are of vital importance. Also, if the tasks done are under limited time constraint, such as rush jobs, the timeliness of finishing these tasks should carry weight. A criteria of how to award points for an accomplishment should be agreed upon by the management. 

There are also other ways to reward employees if the merit budgets have been maximized. One is to give employees additional vacation days for a job well done. Another is a simple recognition from you or from the management, like the employees of the month at fast-food establishments. At the end of the day, employees who are working hard should feel that the management is patting them on the back for a job well done.


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