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01/25/2013

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So, Ann... are you advocating that the failure of accurate goal-setting should inspire a withdrawal from effective incentive plan design? Yes, that's a trick question. ;-)

I've seen such well-balanced portfolios of incentive plans at firms whose very name has become both a noun and a verb. They had so many overlapping, independent and confusing product incentive programs that salespeople just picked one they understood and sold the heck out of that product. No one single plan truly drove performance; failing to pass the gate in one plan could be offset by altering effort to a different product where that trigger-point hurdle could then be passed and the desired cash reward produced to the salesperson. Although the employee got the money they wanted, the company didn't get the output results they wanted even though they disbursed the same amounts of cash despite disappointing imbalances in productivity. It's a really complicated thing.

If the idea is to insulate participatants from downside risk, yes, such "balance" is needed. But you insulate people from risk of loss, then how can we balance consequences if there are no negative reinforcements for failure? Therein lies the dilemma of "moral hazard" that has wreaked such havoc on our economy.

Is is more important to make employees happy with their pay than to make the enterprise successful? They are different goals.

This is a great remimder Ann. It's difficult to design a plan that is foolproof. I remember one VERY large well-known company that failed to design in a threshold of profits before payout. They quickly learned their mistake when they had to bite the bullet and pay out incentive awards to employees even though it ate into their profits much more than they had intended.

Jim:

Nope, to your trick question. I don't see the notion of a well-balanced set of rewards necessarily meaning overlapping, redundant and confusions plans and elements. I would expect us to seek it in a (hopefully more sensible) place somewhere between a twisting, complex labyrinth of plans and features AND hanging everything on one stretch measure. Not to suggest that finding this sweet spot of careful, thoughtful, balanced plan design is an easy task - no sir. But that's what they pay comp pros the big bucks for, right? (Cue the hysterical laughter...)

Nor am I suggesting that we insulate people from downside risk. Rather, I think we're supposed to be aiming to maximize the likelihood of the circumstance where both enterprise AND employees win. As we define that. And to think through the downside and the circumstances likely (or possibly) surrounding it, so that we create a plan (to the best of our ability) designed to maximize balance and fairness considering both enterprise and employee interests, and minimize unintended blowback.

A tall order? You betcha! But shouldn't we try to get as close as we can?

Jacque:

Right on. I'd even go so far as to say it's impossible to design a plan that's foolproof. Doesn't mean we don't try out best, though. And then, in the best traditions of tinker/tailor/experiential learners, we assess and learn from our mistakes and get better the next time!

Well as you can guess I'm all for tinkering and tailoring! Whatever works in this "new world".

I do think that one very important component with any plan that is truly balanced --- meaning there is risk involved for both parties as well as reward --- is communication.

If your company truly believes in pay-for-performance then it should almost be made a mantra with employees doing the chanting.

Now don't laugh and be cynical. Employees need to understand that just as companies miss targets, miss winning a big client, miss deadlines and get kicked off a project, etc. ---- both company AND employees are affected by this and shouldn't expect to be insulated from it.

Now this works very well until some big time Veeps get huge bonuses while the masses get nothing. Then it all falls apart.

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