What Works and Doesn't Work in Employee Incentive Plans

by on June 11, 2009 · 0 Comment POSTED IN: HR Info Center

Employee incentive plans should not be individualized

When people say you can’t pay for performance with base salary, that doesn’t mean you can’t have employee incentive plans based on performance. You can pay for performance with bonuses. There are lots of different ways to do it though, so be careful. If you proceed with employee incentive plans that are individual in nature, you often will sub-optimize. You will reward things that aren’t necessarily in the best interest of the corporation and people when confronted with what they know is probably the right thing to do, if that ever conflicts with what you’re paying them to do, they’re probably going to do what you’re paying them to do. So, it’s easy to outwit yourself by individualizing employee incentive plans.

You don’t need to pay somebody to develop themselves. The reward for being developed is you’re developed, you’re more valuable, and you’re enriched. Your job is better, your life is better. If you want to give a manager a bonus for developing their people, that’s different. That could be a component to their bonus but the practice of giving bonuses to people in part for developing, for going to school isn’t necessarily enough.

When you are developing employee incentive plans, the higher you get in the organization, the more general it should be. Concrete measures for bonuses are better than something ephemeral or difficult to measure. Most of you who had to pay based on elusive things that don’t have numbers associated with them find that could be difficult, very subjective. Employees whine and gripe about it.

Another word of caution. Paying superior individuality can impact teamwork. If you pay somebody to be a superior individual contributor, don’t be surprised if they feign active teamwork but are really in it primarily for themselves. So, again be careful.

Employee incentive plans based around profit sharing work as well. It assumes that you don’t pay anything unless you hit all the numbers that make this a good place to be and a profitable place to be but if we go beyond that, why not share some things. And usually what I like most about profit sharing is if you’re communicating to your population at large what the big drivers are, the top five drivers, top seven drivers, and they can see visually whether things are doing or impacting that, you may just actually get more positive behavior out of something like that.

Edited Remarks from “How to Drain the Drama from Salary Reviews: A Conversation Roadmap” by Gary Markle

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