Reviewing Your Incentive Plan: A Three-Tiered Conversation

It's that time of year.  Many of you are in the throes of reviewing your employee incentive plan, trying to determine how (and in some cases... whether) to move it forward to 2011.

Years of designing, reviewing and working to rescue incentive plans have taught me the value of three tiers of conversation in this effort.  With this approach, you get the information necessary to assess both intent and reality at the levels of strategy (executive leadership), execution (first line management) and ultimate "customer" experience (employee participants).

Three key plan constituencies, three sets of conversations that serve distinct but related purposes.  These discussions can happen through one-to-one interviews, in focus group like sessions or (least desirable to me, but sometimes you do what you gotta do) via a survey process.

What to ask? Here's a sample of the kinds of questions I like to pose at each tier.  Obviously, different situations will demand their own unique line of inquiry, but these are some that have produced fruit for me more often than not.

For Executives:

-What are the organization's top strategic priorities going into the next year? 

-How should the dollars spent on employee incentive awards support achievement of these priorities - what specifically should the incentive plan accomplish?

-How well is the plan, in its current form, designed to achieve these ends?  Where are the gaps in design?

-Do managers and employees understand the plan?  Does it impact their behaviors and their discretionary effort?

For Managers:

-How well do you understand the plan?  How well do the employees who report to you understand it?

-Does the plan make a positive difference in your department's ability to achieve its top priorities?  What's working well and what isn't?

-Do your employees understand what they must do, in their day to day activities, to affect plan measures and earn an award?

For Employees:

-Do you understand the plan and how it works?

-Do you receive information on your progress toward earning an award?  How often?  Is that often enough?

-Do you know what you have to do to affect plan measures in your day to day work?  Does the plan make a difference in how you focus your time and energy?

-How could the plan or its communication be improved?

I find these conversations - and questions like these - invaluable in putting together a picture of plan performance and possibilities. 

How about you - what's your favorite question for incentive plan design or assessment?

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.

Comments

[Derek Irvine, Globoforce]

Great post, Ann, and exactly why we advocate strategic recognition over incentives. Set up the program based on your company values and strategic objectives, and then recognize employees (frequently and in a timely way) when they demonstrate behaviors that reflect your company values or achieve results that contribute to your strategic objectives.

Doing so not only rewards employees for excellent work, but it is an excellent, positive communications mechanism for your values and objectives, bringing them alive in the everyday work of your employees.

Employees don't need to worry about "progressing to earning an award." They are always eligible for recognition when they behave and perform in the desired ways.

[Dan Walter]

GREAT post Ann.

I like to add a few "why" questions to the process.

Execs
- Why has your plan worked (or not)?
- Why did you choose to use the compensation instruments you
- Why not spend the money required to properly communicate/fix/enhance/replace your current plan

Managers
- Why do you think the company has this "xyz" plan?
- Why don;t you have more time or motivation to get your staff to understand the plan (or why don't you understand it better yourself).

Employees
- Why do you think the company has this "xyz"
plan?
- Why do / don't you participate in this plan?

and a little change of pace:

Can you explain the potential value of this plan to you for the upcoming year or for the plans life?
Can you explain how to best achieve reaching this amount?
Do you understand how you can impact the amount you can earn?

[Ann Bares]

Derek:

No question that recognition (especially when done "strategically") provides us with a powerful opportunity. Business and economic reality, however, has brought us to the point where a growing proportion of an employee's cash compensation must be variable - delivered based on some contingency, typically performance. That being the state of play, it is important to use and deliver these incentive dollars in a manner that is aligned with strategy to the greatest degree possible.

I don't think it is a matter of whether recognition or incentives work better - the fact is that a successful reward package in today's environment requires both. Hopefully designed in a complementary manner!

Thanks - as always - for the insightful comments.

Dan:

This process is all about asking enough of the right questions - thanks for adding these awesome ones to the mix!

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That being the state of play, it is important to use and deliver these incentive dollars in a manner that is aligned with strategy to the greatest degree possible.