A points-based incentive compensation system encourages employees to take certain actions to earn points that can be used for rewards or to qualify for bonuses. For instance, an employee may need to earn 100 points to earn 100% of their quarterly bonus. This type of incentive comp plan can be used for large departments or entire companies.
In some ways, a points-based incentive compensation system is like a restaurant loyalty rewards program. If you spend a certain amount of money or make 10 purchases, you receive a coupon or a free drink. With incentive comp programs, instead of purchases, employees accomplish certain goals such as achieving certifications, writing blog posts, doing a demo or attending industry events.
Points-based systems can further incentivize employees to make progress on many goals at the same time. While other incentive comp programs can be helpful in driving performance toward a specific goal, such as increasing sales by 3 new accounts a quarter, a points-based incentive compensation program can reward employees for performing any of a number of actions that your company chooses. Each task could merit a different number of points toward the goal.
Examples of Points-Based Incentive Comp Systems
A points-based incentive comp system assigns points to each task or goal. To redeem the points or to earn a bonus, employees must accumulate a certain number of points in an established period of time. Employers can establish caps for each goal or for the total number of points each employee can earn for the period of time.
For instance, employees earn 5 points for writing a blog post and 10 points for going to an industry conference. You might set caps for the maximum number of points an employee can earn for a specific task, such as only 3 blog posts or 15 points.
There are many advantages to implementing a points-based incentive compensation program. These include:
- Easy to Maintain: Points-based incentive comp programs are easy to maintain. When a new employee on boards with the company, they can simply receive access to the system. HR managers and department leaders can approve points easily when employees achieve certain goals.
- Frequent Recognition: This type of incentive compensation program enables frequent recognition of employees. You can give small amounts of points throughout the quarter for showing initiative or helping out a new employee without much consequence.
- Gamification: A points-based approach gamifies the recognition process. Employees can continue to find motivation in seeing how the little actions they take progress into tangible rewards.
- Progress on a Variety of Goals: Unlike other performance-based incentive compensation programs, using points enables you to have employees work toward a variety of goals. While the performance goal of reaching certain sales quotas is still important, this approach makes that just one part of the equation.
- Potentially Less Expensive: Depending on how your company structures its points and rewards, it could be less expensive. Giving away gift cards to local restaurants in exchange for points cost less than purely monetary sums.
- Employees Already Familiar: Because of the prevalence of restaurant loyalty programs, most employees are already familiar with the concept of a points-based incentive compensation program. You won’t need to design a substantial amount of training to explain the concept to them.
- Promote Collaboration: A points-based incentive compensation program promotes collaboration between employees. Since the bonuses are not only given to the top performer, everyone who contributes to a goal can earn recognition. This can promote collaboration over competition, which can foster a better workplace environment.
While a points-based incentive compensation program has many benefits, there are some disadvantages to consider. These include:
- Delayed Gratification: A points-based incentive compensation program provides delayed gratification. Employees will immediately receive a reward for their behavior or goal achievement and will have to wait till the end of the designated period to redeem points or to have enough points accumulate.
- Transactional Relationships: In some ways, this type of program could foster transactional relationships where employees take actions only for the reward of the points. Conversely, it could be argued that most employee and employer relationships are transactional for compensation anyway.
- Employees Forget About Rewards: Employees could potentially forget about their points and rewards or failed to redeem them before they transition to new jobs.
- Employees May Not Like Rewards: Employees may not like the rewards that you offer if you choose to utilize store and restaurant gift cards as rewards. They could potentially be less motivated after finding out that the reward is for a restaurant they don’t want to eat at.
Points-based incentive compensation systems can be incredibly valuable tools for increasing employee retention, satisfaction, and performance. While this approach may not work for every company and every team, the vast majority of workplaces could utilize this type of program in some way. There are certainly more benefits associated with a points-based system than disadvantages.