The Basics of a Successful Employee Incentive Plan
Have you ever considered a pay for performance comp plan?
Find out if a pay for performance model will work for your company and learn how to avoid costly mistakes with our webinar Should Your Organization Pay for Performance?
Though they seem to come in endless varieties, all successful employee incentive plans are united by a few simple core design issues:
Core Issues for Successful Employee Incentive Plans
- Who are you going to incent?
- How much are you going to pay, and for what result?
- How are you going to deliver the employee incentive - monthly, first-dollar, quota attainment, etc.?
- And, a key question that Payscale.com can help you answer: Is your total pay package competitive when you include your incentive compensation plan?
This last question you need to answer to avoid what I call the “numbskull” factor – losing good people because, unintentionally, they’re not being paid their value compared to market.
These are all important issues to consider. But there is a much more essential question: Will the employee incentive plan actually lead to the result you want? An especially important question during a recession when every sale counts.
The Unspoken Issue: Do Employee Incentives Plans Work?
It seems like this answer must be obvious - employee incentive plans must work. If they don’t, why do so many companies have incentive plans that they continue to pour money into, even during a recession?
At the same time, much evidence exists that employee incentive plans don’t work as commonly used. They don’t increase the “quantity” of results except perhaps in the very short term. And, rarely do their special rewards and benefits increase employee productivity. To get a grounded understanding of this point of view, try Alfie Kohn’s book, Punished By Rewards.
Other evidence that employee incentive programs don’t work can be found informally. For example, how many articles have you seen in the management and HR press with titles such as, “Why everyone hates your employee incentive plan” or “Why your employee incentive plan doesn’t work”?
Given the apparent contradiction between practice and results, a few years ago I checked in with a veteran, respected compensation consultant. He was known as a straight shooter and had designed many plans. I asked him if he could give me even one example of an employee incentive plan that really drove a key result for a business.
His response still amazes me. He thought long, he struggled to come up with an example, and he finally said, “Most of them don’t drive a significant result; I can think of only one that did.” That truly was the reply. Are you not a little bit stunned at this response?
Employee Incentive Plans Grab Attention, But Don’t Motivate Employees
Building a successful employee incentive plan is especially important during a recession – if plans aren’t built on bedrock, they’re not likely to support the business results you need during an economic earthquake. Research and experience point to these basic facts about employee incentive plans:
Facts About Employee Incentive Plans
- Employee rewards and benefits rarely do the heavy lifting; your employee incentive plan won’t likely cause a result to happen.
- Incentives absolutely don’t take the place of managing, thus the old principle: Don’t make a management problem into a compensation problem. This is especially crucial during a recession. Getting your employees fully energized and committed is a relationship (management) issue, not a compensation issue.
- Successful employee incentive plans can, however, get people’s attention and make clear to them what you really care about most.
It’s therefore up to each of us to align people with, and inspire them by, our organization’s critical goals so that they pursue those goals with a passion – a passion that can’t be built through an incentive plan that offers employee rewards and benefits.
Readers, I’m curious, your thoughts?
Do you have a topic you would like Compensation Today to cover? Write us at email@example.com.
Are you paying your best employees enough to retain them after the
economy picks back up? Get up-to-date and make sure your external
salary market data is specific enough to the education, skills set and
experience of employees you want to keep. Give a PayScale demo a try.