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Incentive Plans That Pay Off

Using incentives – rewards that encourage people to better effort – can be an extremely effective way to engage employees and boost your bottom line. Although creating incentive plans that work requires careful planning, it doesn’t have to be a complicated or difficult process.

In this article, you will learn to:

  • Understand the pros and potential pitfalls of employee incentive programs
  • Identify which ingredients are essential for an effective incentive program
  • Help employees focus on the truly important things

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The beauty of employee incentives is their potential to leverage a small investment of time or money into substantial returns for your practice. For example, a business office employee might earn a $100 gift card for effort that results in increasing collections by $10,000: That effort represents an additional $9,900 of revenue that otherwise may have been unrealized.

Employee incentive plans are not without their perils, however. First, if desired outcomes are not carefully defined, they may result in unintended consequences. Consider a practice that wants to “improve” its billing process and decides to reward its billers for how fast they post claims. They wind up with a lot of quickly submitted but inaccurate claims that require rework. When billers work too fast, they may skip steps and make errors, so the billing process doesn't really improve -- it just gets faster (and ironically, creates more denials, which only causes you to invest in more staff to unwind these mistakes).

Second, if incentive plans are unlimited in scope they can easily become perceived by employees as entitlements – not rewards for exceptional performance. Think about the convention of handing out the same bonus to every employee at holiday time. There’s certainly nothing wrong with that, but it should be called it what it is: a gesture of appreciation, not an incentive. When an annual bonus is positioned as an incentive, but employees don’t have to do anything special to earn it, this noble gesture actually backfires: it acts as a disincentive to top performers who ask themselves why they should continue putting in extra effort if they’re going to receive the same reward as co-workers who didn’t.

The good news is that with just a little careful thought you can implement an incentive program that works for you and your employees. Follow this 10-step roadmap to reap the rewards and avoid the risks.

Ten Steps to an Incentive Plan

  1. Gauge your commitment. While incentives don’t have to be extravagant to be successful, they do require baseline funding. They also take time to administer. If you’re not prepared to finance or manage an incentive program, it’s best not to start one.
  2. Engage your staff. If the size of your staff permits, appoint a few employees – your top performers – representing different staff perspectives to an advisory committee tasked with developing your incentive program. They’ll appreciate the recognition, the rest of your staff will buy into the program faster because of their co-workers’ involvement and the program will be more effective as a result. Let your entire staff know who’s on the committee so they can provide input to those employees, if desired.
  3. Identify areas for improvement. Make a list of goals based on opportunities you know you want to address, as well as suggestions from the advisory committee. These may be very high level and qualitative – like establishing a more integrated physician-manager team – or very granular and quantitative – like achieving a certain percentage of A/R over 120 days. Once you’ve developed the list, identify three to five goals for your team to focus on initially; any more than that and it’s likely that efforts will be diluted and none of the goals will be achieved. As goals are met over time, swap them out for new goals.
  4. Define success. Determine the desired outcomes for each of your three to five key goals. These objectives should follow one simple rule: they should be SMART (specific, measurable, achievable, realistic, and time-bound). For example: If you’re successful establishing a more integrated physician-manager team, perhaps a reasonable outcome would be to see your revenue increase five percent year over year based on a new ancillary service that you started as a result of improved communications and taking action as a team. Similarly, you might hope to achieve a target of less than 10 percent of A/R over 120 days, as measured quarterly. Each of these objectives has a finite end point when you’ll be able to say whether the objective has been achieved and whether those responsible for the objective should be rewarded. This is a good time to step back and ask whether any of the objectives has the potential for negative side effects; if so, adjust the objective.
  5. Determine responsibility. Identify who will be responsible for achieving each objective – and will reap the reward if it’s achieved. While the onus of achieving some objectives may rest on an individual employee, in most practices, achievement requires teamwork, and multiple employees may share responsibility for an objective.
  6. Establish incentives. Now that you know what you want to achieve, its value and who is responsible for it, you can determine the reward for each objective. Rewards should vary depending on the degree of effort required (by type of account handled, for example, or by specialty). They also should reflect what your employees value: while incentives are often financial, don’t overlook the power of non-financial recognition. If achievement of an objective requires a team effort, at least half of the reward should be based on team performance and the remainder on individual achievement. Once the reward has been established for each objective, break it down into the chunks each employee stands to receive for her or his contribution to the effort – this is the information each employee will need to have.
  7. Communicate the program collectively. Put the incentive program in writing, introduce it at a staff meeting, distribute it in writing and post it on your intranet. The document should explain the key goals (what they are and why they were selected); describe the supporting objectives, including the formulae for calculating and responsible team members; present the rewards (the part employees will be the most excited about!); communicate how the program will be monitored and rewards fulfilled; and, if applicable, recognize the advisory committee for its time and effort.
  8. Communicate the program individually. In your next 1:1 meeting with each employee, ask if there are questions about the program or the employee’s responsibilities related to it. Also ask whether the employee has any initial ideas about what she or he plans to do to achieve their objective(s). Recall that you’ve told employees what you want them to achieve by when, and why it’s important – but you’re leaving the how up to them. This conversation can be a good way to uncover activities that, while well-meaning (like speeding up claims processing) may result in negative unintended consequences – without micromanaging the employee.
  9. Review, revise and improve. Your goals may change over time, and your incentive program should evolve with them. Review the program once a year, quantifying the plan’s impact on the practice, fixing any aspects that aren’t working a smoothly as they might and incorporating new ideas from the advisory committee. Communicate the results and updated plan to staff just as you rolled out the original program.
  10. Monitor, report and fulfill. To maintain program engagement and momentum, create visual “report cards” of the objectives, display them in staff areas and update them regularly as progress is made. (Envision, for example, the thermometer posters organizations like United Way use to show progress toward a financial goal for a fund-raiser.) At the end of the achievement period for each objective, report out the final status to all staff; if the objective was achieved, celebrate and fulfill rewards within 30 days. Add a handwritten thank-you note for an appreciated personal touch. A bit of housekeeping here: Because monetary rewards are – sadly – taxable income, you might find it easiest to distribute them as part of employees’ regular paychecks. Make sure to give each employee earning a cash incentive a written statement of the gross amount of the reward. Distribute the statement separately, either with or before payroll distribution, so employees can see what they earned before Uncle Sam and the state took their cuts.

With some careful planning, an employee incentive program can be a powerful tool for increasing revenue, reducing expenses, and engaging employees. Create specific, measurable objectives, communicate the program clearly to employees, and fulfill promises promptly and you’ll be rewarded with a happier staff and a healthier bottom line.

Pearl 1/21/13

To Lead or Not To Lead – Is Not the Question

Employee incentive programs don’t take the place of managing and having visionary leadership. Thus the old business adage: Don’t make a management problem into a compensation problem. An incentive plan won’t ensure that your employees are engaged in the success of your practice. Although you may meet a short-term objective via an incentive plan, good leadership will ensure your practice’s long-term success.

Pearl 1/14/13

Command Performers

An effective employee incentive system should recognize and reward two important outcomes: performance and behavior. Most programs just reward performance, but don’t forget about the importance of punctuality, attendance, compliance with safety and clinical guidelines and teamwork, to name a few. Thus, it’s critical to have an annual performance evaluation for each employee, even if you have an incentive plan in place.

Pearl 1/9/13

Spot On

Spot rewards” are intended to recognize employees at the time of – or as soon as possible after – the noteworthy action. Cash always works, but it may be hard to have in stock to deliver the spot rewards. Instead of cash, consider gift cards to a gas chain or major retailer, offering time off (i.e., one reward equals one hour off), or contracting with an online, points-based system like PerksPlus, a program in which employees can redeem the points you issue for spot rewards in exchange for prizes like an iPhone.

Pearl 1/7/13

A Little Goes a Long Way

Small, frequent financial incentives can be as – if not more – effective than large, infrequent ones. They also have the added advantage of not breaking the bank. Depending on what your employees value, non-financial rewards also can inspire desired behaviors. For example, your staff might appreciate:

  • An award – a trophy or a simple certificate
  • A bag of popcorn, two movie passes and a note that reads: “Thank you for all of your hard work; Hope you’ll relax this weekend!”
  • A rose in a vase on the employee’s desk with a note that reads: “For all you do, this bud’s for you!”
  • A bouquet of flowers to an employee’s home with the message: “Where would we be without you? Thank you!”
  • Complimentary dinner delivery – or make trays of lasagna for everyone; accompany with the note: “Thank you for your hard work – hope you’ll take the night off!”
  • A make-your-own ice cream sundae cart – propelled by you, wearing a funny apron
  • A BBQ behind your building – for lunch, or to take home
  • A casual dress Friday

As you are developing your incentive plan, remember that good things come in small packages.


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