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.
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