Employee Incentives: Key Terms Explainer
In today’s article, we’ve put together a comprehensive list of the key terms around Employee Incentives, with links out to more in-depth articles, to help you navigate through a world of lingo, abbreviations and technical terms.
Base remuneration – the fixed component of the remuneration model – salary or wages, hourly rate (no performance-based incentive).
Commissions – commonly used financial incentives for salespeople – typically a fixed amount per sale/product or a percentage of sales.
Discretionary bonus – informal bonus paid at the discretion of management, often not related to any particular performance metric.
Employee Options Plans – a plan that gives employees the option to buy shares at a future date and price, designed to benefit from increasing share value.
Employee Share Ownership Plans (ESOP) – a specific type of equity-based compensation where employees can own shares in the company they work for. Read more about which employee share ownership plan is right for your business.
Equity-based compensation – a reward or payment provided in equity – shares or options rather than cash payment – a form of LTI.
Flexitime (flexible working hours ) – simply means employees can elect to work different hours which might better suit their personal / family situation.
If / then rewards – “if” an employee or team achieves a target “then” they are paid a bonus – normally a one-off short-term project or fixed KPI.
Inhouse amenities – often difficult due to potential fringe benefits tax issues – many businesses include gyms, on-premises childminding, parking etc.
Gain sharing plan – a type of incentive where employees share in the gain from a specific improvement – increased productivity or customer service metric for example.
KPI (Key performance indicator) – a key metric for business performance often matched to a bonus or reward upon success.
Lagging indicator – a backward (historical) looking KPI that measures historical performance, for example, monthly sales.
Leading indicator – a forward-looking KPI that looks to predict likely future performance, for example using website visits to predict next month’s sales.
LTI (long term incentive) – designed to reward longer-term performance > 12 months – for example, a bonus payment attached to achieving a financial year profit target or goal.
Me day – a day of special leave either annually, or in some businesses monthly.
Net Promoter Score (NPS) – a survey-based metric to measure customer satisfaction, often used as KPI in bonus or reward programs focused on customer service.
Now / That rewards – “Now that” an employee has achieved X or demonstrated certain characteristics they are eligible for some reward or bonus.
Parental leave – now becoming very common but introduced initially to allow parents to take time off to look after children.
Peer to Peer recognition – employee to employee recognition – often employee of the month style awards based on internal voting.
Performance coaching – a professional (typical psychology based) engaged to work with employees to improve performance and development opportunities.
Perks – an employee benefit – some extra reward or an advantage you get as an employee – discounted product for example. In some cases a formal program (see perkbox for example) of benefits, discounts etc
Profit share – a model where a percentage of profit is shared with employees as a bonus payment.
PTO (paid time off) – lots of larger businesses are introducing paid time off – most often for a charitable/ community / social purpose.
Purchased leave – some businesses allow employees to acquire additional leave – either for a cash payment or reduction in overall income.
Rapid improvement plan – a short sharp project-based model to improve on a key KPI – for example debtors days – offset by a one-off bonus/reward upon achieving the target – part of the ownership mindset model.
RDO (Rostered Day off) – many businesses have a rostered day off – either monthly or fortnightly – a type of special leave that does not reduce annual leave.
Referral programs – employee referral programs are designed to reduce recruitment costs and reward existing employees for introducing new employees.
Restricted stock units (RSU) – a form of equity-based compensation where units ( shares ) are issued to an employee with a vesting plan – typically time-based – the equity becomes “unrestricted” after a certain date
Retained bonus – a bonus that is held and only paid if the employee is retained for an additional period – for example, a bonus of $1,000 might be paid 50% now and 50% in 12 months (only to employees who are still with the company).
Salary packaging – a tax-effective structure to allow employees to pay in pre-tax income for selected items like motor vehicles, electronics etc.
STI (Short term incentive) – focus on rewarding short term behaviour typically monthly or quarterly targets.
Total rewards – an organisation’s total rewards package – made up of all the rewards paid to employees, typically includes base pay, commissions and bonuses, recognition & rewards, perks, incentives, profit share, equity-based compensation.
To discuss your options for succession planning, employee share ownership plans or business valuation services, get in touch with any of our Australian offices. Contact us in Sydney, Melbourne, Brisbane, Canberra, Hobart or Perth for a free 30-minute consultation.
Interested in retaining your key employees?
Get your free ESOP whitepaper.