Nine Ways to Sabotage Your Incentive Plan

I continue to be amazed at the many ways that companies manage to sabotage their own incentive plan efforts.  Just for fun, I thought I'd compile a list of some of my favorite fails.  I'm sure you have your own to add!

1. The Borrowed Plan.  Why bother with the hassle of creating an incentive plan designed to support your company's competitive challenges, business priorities, values and culture when you can simply slap in the one your old employer used or the one that the guy from your networking group emailed you.  Easy, peasy.  Problem solved.

2. The Last Minute Roll-Out.  You just couldn't find the time to work on the incentive plan until your boss reminded you (again) that it's one of your KPIs for the year.  Thus reminded, you put one together quickly and slide it in place quietly two-thirds of the way through the fiscal year.  Maybe nobody will notice.  Heck, it's not like you're trying to get people's attention or change their behavior.

3. Refuse to Say What You're Trying to Accomplish.  Defining plan purpose and objectives? Seriously? This is the real world where we don't have the time for such academic exercises.  The Board has declared that there will be an incentive and so an incentive plan there will be.  I already have a design in mind that I like, so that's what we'll go forward with.

4. Ignore the Real Problems.  You and I both know that the reason for our drop in manufacturing productivity is the lack of organization and the poor communication surrounding all the recent product changes.  Engineering and manufacturing management haven't been on speaking terms in months, and plant employee morale is at an all-time low.  But senior management is insisting on an incentive plan to spur productivity, so let's give them what they want - no questions asked.

5. Ignore Funding and Cost Questions.  What will it cost?  What will it pay out under different scenarios? Return on investment?  Seriously, who has time to sit and figure all that out?  Plenty of time to worry about that at year end.

6. Documentation is for Sissies.  Formal plan documents?  You must be kidding!  We explained the basics of the plan at the quarterly staff meeting.  People basically get it - at least at a high level - and they're all excited about the possibility of a payout.  It's all good.  What could go wrong?

7. The Payout Fail.  So now it's year end, incentive goals were not met, the plan isn't going to pay anything out, and people are ticked.  Really ticked.  Yes, you probably could have explained it better and set the plan threshold more thoughtfully.  OK, it's a disaster.  So let's just pay them out something - anything - just enough to take care of all the complaining and get this whole thing behind us.  We'll start over with a fresh new plan next year, and this time we'll really mean it.

8. Squandering the Teaching Moment.  Plan roll-out was completed and the plan announcement memo from HR went out on time.  But now people are going to their managers with all these questions.  How is net income calculated?  What things can the company do to maximize earnings?  What does their department do that helps the company be profitable?  Are there things in their job that they could do differently to better their odds of earning an award?  Our managers are already busy and overwhelmed - they are not prepared for these conversations and they don't really have the time for the distraction.  What to do?

9. Balance? What Balance? Hey, management wanted us to use incentive to increase productivity, so we gave them a straightforward productivity-based incentive plan.  How were we supposed to know that a relentless, single-minded focus on productivity could result in problems with quality and employee safety?

What incentive plan fails have you witnessed?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a wide range of client organizations.  Ann was recently named President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and has joined the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares. 

Creative Commons image "Spy vs Sci 567" by Anonymous9000

Comments

[Joe Rice]

The overly-complicated fail!

[Ann Bares]

Joe:

Absolutely. I like to call that one the "If I could somehow just get all these things into the plan then I wouldn't have to actually manage those idiots any more" fail.

Thanks!

[Joe Rice]

Yes, rolls off the tongue. Sad thing is, I have to admit I may have designed one of those plans. Lesson learned the hard way.

[Ann Bares]

We've ALL designed one of those plans. Lessons learned the hard way tend to be the most vivid and long-lasting. Can't learn as powerfully reading it in a book as in screwing up (or being involved in a screw up) first hand!

[Saado Abboud]

Thanks Ann for the entertaining article.
The one plan fail that I have seen is developing the performance tables just a few weeks before the incentive payout date so we have documentation for why we paid what we paid!

[E. James (Jim) Brennan]

My favorite was the carefully designed sales incentive plan shot down at the annual sales meeting because it was based on the annual sales projection reports submitted by the sales managers. When it was announced, the troops rose up in protest, saying, "Hey, you always required us to give you a number for sales projections and production planning, but this is the first time you actually are going to hold us accountable for it! That's not fair, because you never cared before, so we just made up some number for the report." Thought the Chief Manufacturing Officer was going to have a heart attack when he heard that. The CFO was in a daze, too.

[Ann Bares]

Saado:

Funny - yes I've seen the same thing. Then its really more of a "rationalization to pay them more money" than a "pay for performance" plan.

Also seen a few executives who anguished over the performance tables all year, tweaking and redoing them, over and over and over, and then blasting them out when it was too late to matter anyway.

Thanks for sharing!

[Ann Bares]

Jim:

That is a wonderful story. Would have loved to be a fly on the wall during that meeting!

[E. James (Jim) Brennan]

It proved the necessity for testing all the assumptions behind the plan we so carefully created. We were barred from disturbing the troops at this EXTREMELY profitable enterprise which still remains a globally recognized name, because they had a 51% ROI. That justified their insistance that the plan designers should do their work remotely without verifying the input parameters or bothering managment with annoying technical questions. Boy, was THAT a lesson about GIGO!