You Get What You Pay For

You get what you pay for – where did you hear that before. How many of us have bought something from a TV pitchman and found that the product was  not what we thought. Likely the product was not worth even close to the  $19.95 (plus
shipping and handling) that we paid.

Business owners and managers are not immune from finding that always trying to get the  cheapest deal often turns out to be the most expensive and  unsatisfactory in the long run.

Incentives are a classic and very common area where poor planning and unwarranted
assumptions lead to  unexpected consequences, with three-aspirin headaches that
could have been avoided by a little additional clear thinking. 

What Behaviours do your incentive plans reward?
 
Do you know?

Incentive plans need to be carefully designed to promote the success of the organization. As long as the money is flowing, an employee expecting a  bonus isn't going to ask, "are you sure you want me to do this?"  That's not going to happen, and most incentive plans are not  self-correcting.  Employees will follow the dollar bill with little thought for the bigger picture.

If you haven’t looked at the details of your own plans lately, you should. For many companies, this  is an ideal time, when the new year is approaching and new goals are  being set for 2014. Does your incentive plan reward the right kind of measurements that support the company's wider objectives? Does your  plan reward employee behaviours and results that help to deliver  business success?  Do you expect – and do you measure - a Return on  Investment (ROI) for the incentive money you've targeted for
incentive  payments?

There are enough variations in incentive schemes to fill many books (and they do), but certain fundamental design elements  apply as requirements for success.

• First, the company has to succeed.  Only targets and activities whose achievement advances the company's bottom line should be used to incent  employees. Incentives should not be paid when the company is not  succeeding. You must define what success means, but you should not  reward
  failure.
• Spell out in detail what you want the employee to achieve. Don’t assume that everybody knows – explain everything.
• Provide enough reward to influence behaviour.  Like any incentive, if you want  to
  focus minds on certain behaviour you need to place a clearly visible  carrot out in front.
• The greater the achievement, the greater should be the reward. Be generous when achievements are greater than expected.
• Make sure you can measure performance against quantifiable
  milestones. 

There are other important criteria for an incentive plan to work, but unless  you start with a clear map that details where you want your employees to focus their efforts and what results you want them to achieve, you run  the risk of missing the mark - which can be an expensive mistake.  You  will need a team effort, not the disconnected activities of individually focused entrepreneurs.

The success of an incentive plan should be determined by the overall  success of the
business. A successful incentive plan 1) measures  achievement (not only effort), and 2) directly supports the company’s  business. An incentive plan that does not achieve even these two minimum goals should be looked at carefully and either fixed or scrapped. Think about it, and stop wasting your money.


Inspired by an article on sales compensation by Chuck Csizmar, CMC Compensation Group