Successful Employee Incentive Plans

Can You Motivate Employees During a Recession with a Successful Employee Incentive Plan?

By Stuart Jennings

Bonus plans. Pay-for-performance programs. MBO programs. Commission plans. Stock option and phantom stock programs. Stock appreciation rights.

Employee incentive plans go by many different names; you’ve undoubtedly seen your share. But, with our economy struggling, how should you approach your employee incentive plans differently to reach your organization’s goals? Or, can an employee incentive plan actually create the results you need?

The Basics of a Successful Employee Incentive Plan

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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

1. Who are you going to incent?
2. How much are you going to pay, and for what result?
3. How are you going to deliver the employee incentive - monthly, first-dollar, quota attainment, etc.?
4. 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

1. Employee rewards and benefits rarely do the heavy lifting; your employee incentive plan won’t likely cause a result to happen.
2. 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.
3. 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?

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Comments

[Tyler]

There are several variables that have an affect on the success (or failure) of your employee incentive programs. The types of rewards, budget allocation, and communication strategy are just a few. One of the most important variables, is the Average Positive Reinforcement Turnaround Time (APRTT.)This is the employee incentive program’s average elapsed time from when an employee achieves a program goal (or demonstrates a positive behavior) to the time when the employee experiences a desirable outcome as the result. This is a significant determinant in the success of every incentive program. Your incentive program can be perfect in every other way, but the further your APRTT is from immediate, the less effective your program becomes.

[eCommerce Solution]

Who wouldn't want a successful employee incentive plan? In the fast changing world when it comes to job security, incentive is one of employee's ally.

[Owatrol Additives]

When it comes to salary, you always have the choice on what you deserve. I do believe that anyone can select his/her required salary.

[VMware Class]

A lot of employee research highlights the importance of “recognition” in enhancing employee engagement and reinforcing the right behaviours that benefit the company as well as the employees. Often, I find companies taking a slightly ad-hoc approach to recognition and often such programs end up not being targeted, frequent and in the true sense, rewarding.

[Employee Incentive Program]

This is a neat concept. It's ideas like this that make it more obvious that marketing efforts - especially in the current startup realm- and employee engagement tactics aren't that far removed from each other.

[Jimmy]

I am a spa operator. i want make a incentive bonus system for my staffs ( spa Therapists) on net sales.
On which way i can offer them it. Is it possible for any body to give some ideas of it & the sample calculations........

I need it very urgently............

[Employee Rewards Incentives]

Employee incentive plans do work. If they don’t, why do so many companies have incentive plans that they continue to pour money into, even during a recession?They increases the “quantity” of results in very short term.And their special rewards and benefits increases employee productivity.

[Employee Motivator]

I have a whole blog on employee rewards and incentives if you wanted to check it out. There are also a few links to helpful articles (employee-rewards-incentives.blogspot.com)

Hope it helps!

[Stuart Jennings]

Igor, as to "How (you) can motivate the unmotivated without having a high cost for incentive?", some key principles come to mind:

1) "Incentives absolutely don't take the place of managing", and
2) "Employee rewards and benefits rarely do the heavy lifting; your employee incentive plan won’t likely cause a result to happen."

Look familiar? (They're from my original blog above).

How they might apply in your challenging situation:

1. You'll "incent" through your own managerial skill, through your own relationship with the people who report to you. What makes that a bear in a negative environment is that you'll need to figure out how to strengthen your relationship with people in spite of that negativity = you'll need to create your own island of productive "positive" relationships. At least, I don't see any workable alternative, because:

2. Incentives won't do "the heavy lifting" - by themselves, they won't create the kind of enthusiastic motivation you want.

As to how to build that island of productive "positive" relationships in the face of negativity, maybe that's a subject for a future blog article!

Again, is this helpful? If I'm missing something, please let me know. Thanks.

[Stuart Jennings]

Nick,

More specifics would help, but you may find a couple of general thoughts useful:

1. Especially for a newly created job, you all seem to be on the right track by creating concrete ROI metrics for your new role. My suggestion is to identify the 1-3 (no more than 3) goals that are the most critical for your new role, and to use those for your incentive plan target(s).

2. For every 1x step down in base pay, it's common to see a 1x step up in total compensation potential. For example (using round numbers), if the "market" for a job would typically be about $100,000, and a company wants you to take a base of $80,000 and earn the rest as an incentive, you could reasonably expect the incentive to allow you to make $120,000 if you did quite (but reasonably) well. In other words, if the company wants you to take a $20,000 "risk" on the downside, you would likely want them to take an equal $20,000 "risk" on the upside.

Does this help?

[Nick]

I have a question as it pertains to discovering my own worth. I am currently in talks with a surgery center proposing the benefits of a position they do not currently have in place. The COO of the company as well as several of its physician investers are very interested in having me come on board based on my past accomplishments. The difficulty that I am experiencing is putting together my compensation expectations. I need to loosly outline a job description, expected growth results of my efforts, ROI and the metrics for evaluation of performance. The only suggestion that I was given, that the company already has in place for incentivsation, was a step down in base salary over the course of 90 days with a step up or introduction of an incentive plan.

I would greatly appreciate any examples on all or part of my dilema.

[Igor Yezhov]

I am having a compaign that i am participating as a team leader for with my current company. I have alot of co workers who are unmotivated by the current management that is completely clueless as to the needs and wants of the currently staff. This situation is causing the staff to be highly unmotivated to care about the business growing. The current campaign which is taking place involves the staff to interact with customers on a daily basis and convince them to apply for applications for loan products from a bank. How can i motivate the unmotivated without having a high cost for incentive?

[Stuart Jennings]

In your request, "please send me the types of incentive plans", what exactly are you looking for? I'd like to help here if possible, but am not clear as to what it is you seek.

Thanks, Stu

[kavitha]

please send me the types of incentive plans

[Stuart]

Nancy, I don't know about "should"; the approach that I've seen work builds on this question: What is the one most important (restaurant) result to the company?
For most restaurants, isn't that either net sales or profit? Gross sales can cover a multitude of management flaws, including uncontrolled food costs, wastage, poor labor utilization, etc.
Let me know if that doesn't answer your question.

[Nancy]

I would like to know what the rate and bonus structure for a restaurant manager should be. What is it based on, Gross sales or Net sales.