Implementing an employee incentive program for good performance can be a tricky concept, but if done right, both employee and employer will reap the rewards. "I try to use incentive pay in as many places as I can, especially in sales. I don't base it on gross sales only; I also base it on incremental growth," said Roger Tibbets, vice president, sales and marketing for Injen Technology, a leading designer and manufacturer of air intake kits based in Pomona, California.

Tibbets has offered incentive pay throughout his career and as a result witnessed increased employee productivity. However, at the same time, employers should still interact with employees to learn what they're doing to meet those incentives.

"We incentivize based on company growth each quarter. I don't believe in annual or long-term incentives because if there are no benefits in the immediate future then employees lose track of that and it's not as impressive to them," said Tibbets. "Our quarterly incentive program is based on previous year's sales and current sales and production. If they exceed that, we have variables where they can earn 5, 10, 15, and 20 percent growth ratios, and of course, the incentive increases based on the additional growth we experience."

Employers who set goals based on annual activity and don't monitor them on a quarterly basis may find they have a problem in December when it's time for the review and the employee hasn't met those goals. "But, if you meet with them quarterly they have a chance to take corrective action to obtain their goals by year end."

Employers can gauge employee productivity based on sales increases and interaction between the salesperson and customer. Tibbets has reporting systems in place so employees have to document the number of calls outbound, number of calls taken per day, and new activity, customers, and target accounts. He says if they're doing all those things then they're going to be successful in most cases.

However, according to Tibbets, there could be a downside to doling out incentives if employers are not careful with the amount of incentives they put out, if they make them too easy to obtain, and if there are no structural caps. If the incentive program is structured where the pay can be excessive, then it could be dangerous for the company. There could also be a problem if an employer uses individually oriented incentives.

"Competition is good to an extent, but we don't want people stealing from each other, so we base our program on team play and not just the individual."