The key to an effective employee incentive program

by on June 16, 2009 · 0 Comment POSTED IN: HR Info Center

Find out what’s important to the employee in an employee incentive program

Motivation principle says that to motivate people, you need to determine what is important to the person, offer the important item or items to them in return for some desired behavior. Words like “You do this for me and I’ll do that for you” are the core tenants of an employee incentive program,

Essentially, you make a direct or indirect contract with the employee. The trick here is figure out what you really want the employee to do and determine what they think is a fair employee incentive program.

Performance reviews are key to an employee incentive program
The most important communications you make with your employee is through the performance appraisal process. Performance appraisal not only allows the company to differentiate performance and thus pay, but it also communicates your performance expectations, reinforces good behavior, helps improve unwanted behavior, makes sure everyone is going down the same path in achieving organizational objectives, and tells employees what criteria you use to judge performance.

The employee incentive program goals should be lined up with the company’s values.
It’s a truism in compensation that what you measure is what you get over time and performance appraisal is a measurement tool.

So spend some time in this area to get things right. It doesn’t cost anything to change in this area. And it’s important that you’re able to measure individual performance accurately and consistently in a pay for performance compensation program.

Now, you also have a chance in the performance appraisal process to have a significant impact on future performance. And this is important in your mission to achieve more with less, which seems to be the watch words for 2009.

So in my opinion, it’s more important to change future performance than it is to reward for past performance. But you can quickly evaluate where you are in your performance appraisal process.

Performance reviews are interlinked to the employee incentive program
Eighty-nine percent of the companies use one system for all employees, meaning they’re generally using one form. Most companies change their performance appraisal program about every three to five years or approximately every four years. An employee incentive program needs to change based on the company goals

Seventy-eight percent evaluate employees once a year but 16% do it on a biannual basis. Fifty-one percent train their manager, which has really doubled in the past four years. And this is something I think that you should spend some time on. And most companies obviously are trying to do that. Twenty-three percent use peer or direct subordinate and/or customer input. Forced ranking has decreased dramatically over the years.

Everyone is searching for the holy grail of performance appraisal and employee incentive programs. And I don’t think anyone has found it yet. Everyone answers these questions differently — how many forms will it going to have? How many performance categories should we evaluate people on? Are we going to do a self-review? What are the important competencies or values that we’re really trying to measure? And are we going to do 360 degrees getting peer and subordinate type of input on the performance appraisal process? And just generally, what do we expect our performance rating distribution to be? In order words, how – what percent of our population do we think is – should be rated exceptional versus average?

How each company deals with these questions will determine the make up of the performance appraisal form and process. That’s one of the reasons you never find the same form in two different organizations. Everyone is different.

I realize that performance appraisal is one of the least favorite tasks for managers to do but it’s also one of the most important. You need to improve this process and help make it a less onerous task for you, your managers and employees by proper training to change the mindset of managers and employees when it comes to appraisals.
Edited remarks from the Rapid Learning Institute webinar: How to Set up Fair and Effective Pay Plans in an Uncertain Economy by Rick Olivieri

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