The Conundrum of Incentive Pay

I know of two people who have left their job in the last year because they felt like they were slighted when it came to how their company handled incentive pay.  Both of them- one working for a global behemoth of a company and one working for a family start-up- were promised things when it came to incentive compensation and then the rules were changed on them in the middle of the game, thus slighting them in pay they felt they were entitled to.

And I can think of one company owner who is a friend that has tried and tried to come up with an incentive plan for her business development people that works, only to come out with frustrating results in that the intent didn’t drive the desired outcome.  In some cases, it drove the exact opposite.

Incentive compensation is tough.  It’s why many companies avoid it all together. But I can’t give up on the fact that tying at least part of pay to outcomes and results that contribute to a company’s bottom-line, and the hard workers pocket all at once, aren’t a good thing.

Here are some things that stand in order to do incentive pay well:

1. Align any incentive plan with your company values that drive everyday behaviors. This should dictate that an incentive to perform is not an incentive to cheat. Be like Southwest Airlines, not Wells Fargo.
2. Combine incentives programs with overall social recognition that includes monetary and non-monetary rewards for a job well done. As a Globoforce blog post states:

In 2012, Aberdeen surveyed more than 300 sales organizations to understand how best-in-class organizations motivate their sales staff. Recognition for a ‘job well done’ scored higher than any other non-cash incentives, including competitions, learning & development, and team-based financial compensation. Further, Aberdeen found that best-in-class companies are more likely to indicate that internal recognition for positive performance results is a vital motivator for sales success.

                        And this-

“Just remember that your sales people are human, too, and crave recognition and appreciation beyond the basic comp plan.”

3. DWYSYWD- Do what you say you will do. This means if you say you are going to pay x amount out for doing or achieving y, then do it.  If you screwed up and didn’t figure out beforehand how this affects your bottom-line, its your fault not your employees’.  Of course, this should be tempered with stating that incentive compensation structures are not indefinite in nature, because markets and situations change.  However, when you communicate a plan to your employees you should let them know when this structure “expires” so to speak or is subject to review and changes (most likely on an annual basis) to be clear on expectations of payouts.

Like this post?  You may also like:

Corporate Recruitment Incentive Programs from Fistful of Talent

Meaningless Core Values – A Dangerous Liability