The three major problems in an incentive compensation plan

Incentive compensation plan needs to have a well-designed process and linked results

There are some very broad problems that we see in incentive compensation plan design, in many cases, pervasively, throughout organizations. The seven principles of incentive compensation plan design that will help you understand how you can overcome these problems, how you can avoid them and be more successful.

Three key problems in an incentive compensation plan

1. Managers fail to understand what motivates employees. And as unusual as that sound, it’s a fairly common problem. And we’ll go into some depth on that as well.
2. The second issue is really incentives tied to reaching negotiated budget targets and this, also is a fairly pervasive. In many cases, the budget is used as a way to focus on what people, ostensibly, call pay for performance. In many cases, it resolves not in pay for performance, but pay for a negotiated result. And this can have some disastrous effects on our organizations and we’ll go deeply into that.
3. The third one is the use of the incentive plan, the physical design and the process behind the incentive compensation plan often leads to distorted behavior.

Edited remarks from the Rapid Learning Institute webinar: “How to Avoid Incentive Pay Plan Disasters” by Steve Player