You must want your contractor to earn the bonus. Performance measures must be obtainable, within the contractor's control, comprehended, and valid. Bilateral determination of results creates a collaborative environment between the owner and contractor. Goals and status must be communicated to all employees. A high level of trust between owner and contractor must be established and sustained.
Positive incentives encourage positive actions, behaviors, and relationships.
Negative incentives encourage behaviors and actions that are defensive. Effective incentive plans are designed carefully to respond to specific requirements and particularities of application. A contractor's degree of risk aversion increases with his inability to absorb the potential loss. Two-way communication is essential at all levels of both the owner's and contractor's organizations. Incentive plans take time.