That's Nice But I'm Just The Comp Planner

I’ve talked a lot lately about how monetary incentives are most effective when coupled with a broader talent management strategy that also includes good leadership and career development.

That's right, the key to high performance and motivation is finding the sweet spot between pay, leadership and career.  For example:

• You can pay people slightly less if you have great managers at the helm and/or offer career development, flexible work conditions, etc. – at least until someone comes along and offers all that for more money. 

• For a real career opportunity ambitious people will put up with horrible managers and meager pay – at least until they have what they want and move on to enjoy new careers with better managers and higher pay. 

• Conversely, people will put up with everything from poor management to boredom or even danger in exchange for a fat rewards package – although paying people more to put up with bad management and boredom is a losing proposition because it doesn’t  buy engagement and may well encourage behaviors you don't want. 

Finding the sweet spot basically means you don’t need to excel at pay, leadership and developing people at the same time for everyone.  However, companies that want to attract, retain and engage great people should aim for two out of three and try not to completely stink at any of them. 

So... that's nice.  But suppose you’re a hardworking compensation professional responsible for designing incentive plans, not talent management, career development, or telling the executive team how to run their company.  How can you achieve the maximum impact within the boundaries of incentive planning?

I recommend the following short article that offers a sensible and comprehensive guide for developing high performance incentive strategies: Are Incentives Dangerous? By Kellye Whitney in the July 2010 issue of Talent Management magazine. 

I’ve summarized the main points below, although I also recommend reading the article:

1. There are two critical components of incentive plan design: performance measures and incentives mix.
2. When it comes to measuring performance, pay at least as much attention to desired behaviors as desired outcomes and consider unintended impact - for example, what could go wrong if you pay a bonus for # units, independent of quality?
3. When planning your incentives mix, align incentives to sphere of influence.  For example, leaders should have a larger share of their bonus based on company performance because they are in a better position to influence it. 
4. Too much bonus can lead to short-term thinking so you want to include long-term incentives as well… but not so long-term that people lose the connection between behavior and reward.
5. Make sure everyone understands what behaviors and outcomes the incentive plan is trying to encourage.  I once had a writing teacher who said, “Don't write a mystery for your biology professor.  Say what you’re going to say, then say it, then say what you said.”  This is also good advice for incentives communication.
6. Everyone should have some stake in corporate performance to promote teamwork and cooperation.
7. Don’t spread rewards like peanut butter - figure out how the business makes money and encourage behaviors that create value.
8. Design incentives so solid performers also win, not just ‘top’ performers.  The last thing you want is to alienate your trusty support team.
9. Non-tangible rewards are more effective for improving performance than cash because they’re easier to visualize and less likely to feel like an entitlement.
10. Recognition is important but not a substitute for cash.

Of course, each company is different and will benefit the most from a different mix.  But if your incentive planning process considers all the items on this list, well done!

If you think this article is missing some key component of strategic incentive planning, or would like to recommend another article, please leave a comment and share it.

Picture courtesy of igloolets.com.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Comments

[E. James (Jim) Brennan]

Think you covered all the major bases of incentive plan conceptial design except FEEDBACK, which tends be the major stumbling block (besides "dealing with change") encountered after program launch. Dan Walters' superb Running in the Dark post the other day touched on that.

The best-designed system will flounder if participants don't have line of sight and all the rest of the vital feedback elements that empower them to self-direct. Seems like creating effective feedback mechanisms should also be part of the program design.

[Laura Schroeder]

Thanks for this spot on addition, Jim! I couldn't agree more that designing feedback as part of the plan is a must.