This week, the HR Daily Advisor’s editorial staff is attending SHRM’s 2017 Annual Conference & Exposition at the Earnest N. Morial Convention Center in New Orleans. Today I attended a session by Mykkah Herner, the Compensation Evangelist at Payscale, entitled Effective Incentive Plan Design. The focus of his talk was on variable pay plans and how they fit into an overall pay incentives strategy.
Herner began the session by jovially stating “HR is about the people. And many of us are here for the same thing today.” Before long, however, it was time to get down to the business of designing an incentive pay plan. He defined compensation as “an exchange of value between employees and employers” but said that defining a variable pay plan is not as simple.
“I know we don’t all agree on the exact terminology, but variable pay has concepts that we can all agree on.” And those concepts include bonuses, commissions, retention bonuses, project bonuses, etc.
Herner explained the important difference between bonuses and incentive pay. Bonuses, he says, “may or may not have a plan. It’s often backward on compensation. It’s where we say you did a thing, we are glad you did it, thanks for doing it, here is some money.”
He went on to say that incentives “on the other hand, are associated with a plan focused on performance. It’s future focused. We say dear employee, if you do this thing that we want you to do, here is some money. If you do better than we expect, we’ll give you even more than that.”
In other words, bonuses and incentives are pay methods that differ in direction. One pays you for what you have done. The other pays you for what you are going to do.
Herner describes four stages of designing an incentive program. They are:
- Pre-design. Herner describes this as the stage where you get situated, and importantly “where you make sure you are gaining support and evaluating what you already have in place.” This is also where you must consider the budget you have for the plan.
- Design. The focus of the discussion was on design. In summary, he says it’s “what do you have to do in order to coordinate the design for your organization.”
- Implementation. This involves the “how and when you will pay out this thing. You might be thinking more logistically here. Literally where does the money show up on the paycheck, direct deposit, etc.” He notes that the most important aspect of “this stage is communication.” On that topic, he says “somebody somewhere sometime is going to talk about this without you in the room. They need to be able to do so without you in the room.”
- Evaluation. This is your time of reflection and an important stage. Herner says you need to ask, “are we incentivizing the right behaviors, are we getting the results we are looking for and are they working for you as expected and intended?”
There is more to come soon in another article about 5 important and good things for incentives.