How to Write an Incentive Letter

by Cynthia Hartman, Demand Media
Bonuses help a company show appreciation to hard-working employees.

Bonuses help a company show appreciation to hard-working employees.

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Incentive letters serve as a way to document the reasons and terms of an offer made as an incentive. Incentive letters are commonly used by human resources departments to communicate information regarding commission programs, spot bonuses and other changes to compensation. Additionally, certain organizations, such as utility companies, might send an incentive letter to describe a limited-time financial incentive to customers. A well-written incentive letter may help motivate or increase certain desired behaviors.

Step 1

Define exactly what actions are being incentivized. This includes actions such as buying a company's products or continuing excellent job performance. In other words, state why you are giving the incentive. An electric utility company might write an incentive letter to small-business customers, with the desired action being a customer inquiry about something such as the benefits of switching lighting or thermostats over to more energy-efficient versions.

Step 2

Decide on the actual incentive to offer and how to word it in the letter. This could be a monetary bonus, salary increase or one-time payment incentive for excellent work on a project. In the electric company example, the offer might be a rebate of up to 50 percent of labor and material costs if a customer chooses to install eligible energy-efficient technologies.

Step 3

Make sure your letter includes all of the important and relevant components to help the recipient understand the incentive and the conditions upon which it's being offered. This may include the start date for a raise or ongoing incentive, whether a pay increase is retroactive, and if so, back to what point in time. For an incentive letter that provides a cash bonus, retention pay or salary increase, a paragraph might be added to summarize the recipient's past contributions to the organization, the person's strengths that helped earn recognition, and what company leadership hopes to gain in the future from the individual. This could include leadership, specialized knowledge or a positive influence on a team of workers.

Step 4

Review the wording of your incentive letter. Add any necessary disclaimers. It may be useful in an incentive letter to describe the terms of incentives, such as a sales commission program. Clarify any terms such as "earned commissions." If any ongoing compensation is promised, state whether the commitment is binding if the employee leaves the company or is terminated.

Step 5

Ask a knowledgeable third party to review your incentive letter. This may include someone in charge of human resources or an employment attorney. Ask him to check for completeness, making sure all relevant information has been detailed in the letter. Look for language that might need clarification so the recipient understands exactly what's being offered. Add any information that may protect the company in the event of a lawsuit. For example, any ambiguity about employee eligibility for incentives in case they leave the company before all of an incentive is earned should be documented in the letter according to the advice of an attorney.

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