Incentives and The Rule of Three

Compensation Cafe

Designing an effective incentive plan is always a challenge. Over many years I have come to rely on what I call the Incentive Plan Rule of Three. No more than three metrics (KPI), no more than three defined goal levels, no more than three incentive plans for any one individual.

Incentive Plans Work Too Well (here’s the trick)

Compensation Cafe

It's not that incentive plans don't work well, it's that they can work too well in motivating unintended consequences. Are any incentive compensation experts shocked by this? The failed Wells Fargo incentive plan and Tax Reform are similar.

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Woulda, Coulda, Shoulda: An Incentive Compensation Story

Compensation Cafe

Not the least of them was the creation, design and management of the company’s long-term incentive program. She also combined all of these skills to build and manage her incentive compensation plans. This year the two main incentive plans did not perform as expected.

Long-Term Incentives for a Short Term Generation

Compensation Cafe

Second, this means that the majority of these workers do not intend to benefit from the entirety of their Long-Term Incentives (LTI). Designing LTI to attract, motivate and retain the “next” generation: Opportunity 1: Consider “Mid-Term Incentives” that link to Long-Term Incentives.

OMG! You Were Right All Along!

Compensation Cafe

Remember that time you spent weeks modeling a new incentive plan only to have it shot down? It’s difficult to stand your ground when a CEO or department head pushes back on a new incentive plan. They explained that any goals needed to be based on RESULTS!

Are You Paying for Peripheral Vision?

Compensation Cafe

We seem to love to get granular with incentive plans. So many compensation professionals are tasked with not missing anything, they include darn near everything in their incentive plans. It is not a great evolutionary trait in incentive plans. The next metric may be 25-30%.

Compensation Dentistry (part 1)

Compensation Cafe

Annual and long-term incentive plans are often not as well cared for. Just like the fact that most kids don’t grow up wishing to be a dentist, few compensation professionals aspire to be mavens of incentive plans. Yes, incentive plans can be harder than base pay.

Develop Grow Achieve - 3 Tiers for P4P

Compensation Cafe

Metrics for development can be tricky when looking for direct alignment to pay. In individual terms we should focus on those metrics that drive growth, rather than the end result of growth. It is fine to include some aspect of the DEVELOP metrics for those newer to this level.

You ARE Being Replaced by AI

Compensation Cafe

Base with a 31.69% target incentive level, based on the fourteen individually weighted metrics recently established by our big data mining exercise in conjunction with our actuarially-modeled best-case scenario using the recent new pricing model from that academic team at MIT.”.

Cafe Classic: How Much More is Enough?

Compensation Cafe

Later, as I worked on metrics and goals for a long-term incentive plan, this brief conversation came back to me. He has co-authored ” Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation” , “Equity Alternatives ” and other books.

Cafe Classic: The Top 4 Risks in Pay for Performance

Compensation Cafe

Incorrect Metrics. Metrics are the “things” that are being measured. Goals are the levels that define the success of each metric. Many companies create great metrics, goals and communications and still have compensation plans blow up.

Do You Have a Meretricious Merit Program?

Compensation Cafe

But we’ve increased our incentive compensation budget!”, Too often our cash incentive programs do not payout rationally and in line with performance. This happens when metrics are selected, and goals are set, with too much hope and not enough tactical expertise.

The Best Performance Goals Are D.U.M.B.

Compensation Cafe

Goals are: D – Demonstrable : The metrics and goals you use for P4P must show their impact. But, this does not mean that every one of these things should be a metric or goal in your P4P program.

How Do You Measure Results?

Compensation Cafe

We were discussing incentive plans, and my friend asked what I thought was a pretty simple question: “How do you measure results?”. I started blathering about metrics and goals, hockey-stick shaped graphs, targets, and thresholds.

Cafe Classic: Predicting the Next 10 Years of Compensation

Compensation Cafe

As someone who spends a lot of time designing and honing long-term incentive programs, I thought I’d skip 2014 and make some predictions about time frames that compensation people really have to worry about.

Conference Inspiration Sources – Many and Varied for 2018

Compensation Cafe

The WorldatWork 2018 Total Rewards Conference and Exhibition is now in the history books. Base Salaries Benefits & Perquisites Compensation Philosophy Incentives/Bonuses Pay for Performance Performance Management Total Rewards

Trouble Getting Support for New Pay Plans?

Compensation Cafe

Instead of asking people if they want to participate in a stock option plan, or telling them that they should want to be in the new annual incentive plan, think about starting the discussion with the conclusion or results. Maybe you’re asking the wrong questions.

This One Food Will Add 15 Years to Your Life!

Compensation Cafe

They are now focusing the majority of performance weighting on financial and operational metrics. The new focus is providing above average pay through short-term incentives. I’m sort of old.

11 Reasons Your Equity Compensation Survey Data is Wrong

Compensation Cafe

Variable performance metrics (the tasks that must be performed and milestones that must be met). He has co-authored “The Decision Makers Guide to Equity Compensation” and “Equity Alternatives ” and a few books. Part 3 of my ongoing “Stock Options on the Precipice” series.

Cafe Classic: The Compensation Cookbook

Compensation Cafe

Spice up your initial cafeteria offerings with the perfect blend of base, incentive, extrinsic, variable, flex, step, intrinsic, static and untrinsic elements.

Startup Equity: Staying Private in a Public World (Part 11 in an n part series)

Compensation Cafe

They may settle all awards in cash or add in performance metrics that would otherwise be difficult with outside investors looking over your shoulder. It is readily accepted that an IPO is Nirvana to a startup. Of course, a fantabulous acquisition will also work in a pinch.

Cafe Classic: The Compensation Cookbook

Compensation Cafe

Spice up your initial cafeteria offerings with the perfect blend of base, incentive, extrinsic, variable, flex, step, intrinsic, static and untrinsic elements. Base Salaries Benefits & Perquisites Compensation Philosophy Incentives/Bonuses Job Evaluation Recognition Total Rewards

Time Wasting: The Anti-Reward

Compensation Cafe

Is time wasting, as a product of poorly structured (and perhaps poorly incented) management undermining your reward program? Would they receive a poor performance review that would reduce their pay, bonus, or promotion potential?

If Money Were the Solution.

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Roads and railroads would approach the safety record of airlines, whose safety and customer satisfaction metrics would also improve. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.),

Startup Equity: What About Performance? (Part 10 of an n part series)

Compensation Cafe

Rather than focusing on the specific results associated with each metric, focus on what will need to be accomplished to drive success in each metric. They have a single metric which is stock price.

Why Equity and Not Just a Bigger Salary?

Compensation Cafe

The basis of the article is that we do away with all executive incentive pay and replace it with high (in cases much higher) salary. Equity costs less than salary on the books of the company.

A Chrome Panda Predicts Demise of Stock Options

Compensation Cafe

These are smart moves but we compensation professionals know the real money is in base pay and long-term incentives. Performance metrics are being tested and plans are being reviewed for flexibility.

Suppressing Excessive Compensation

Compensation Cafe

We could start with a metric higher than Peter Drucker''s famous old 25 times. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), Time to confess our sins and do penance.

Employee Engagement Lessons from Pizza


In the book Payoff, the Hidden Logic that Shapes our Motivations , researcher Dan Ariely details a study of semiconductor workers in Israel. The cash group – who got an approximately $30 bonus for meeting a goal. The group getting a cash bonus performed worse than the control group.

Why Millennials Want More Feedback, More Often


Most millennials wear the generational label with pride, knowing they and their peers and more driven by impact than by pay , and are motivated by the same incentives that encourage us all to do our best work. Millennials are motivated by the same incentives that encourage us all to do our best work Click To Tweet. Books like “Dress for Success” proscribed the attire for making it to the boardroom. Everyone needs feedback.

1% of Payroll: The Magic Number For Social Recognition Investment


What’s more, the survey found that as investment increases, HR professionals perceived greater positive impacts on nearly every metric evaluated. The annual pay raise or bonus for example, only gives a lift in employee engagement for about one month.

The Best Features of a High-Performance Engagement and Retention Strategy


Fixing the problem requires a systemic approach that changes the whole equation for employees, providing incentives to stay when the labor environment gives them every reason to leave. Begin With the Right Metrics. Creating a bonus system for high-achievers.

How to Effectively Incentivize Your Sales Team


Metrics prove that incentivizing sales teams boosts your bottom line. With the right incentives, businesses can keep their pipelines full. Without those incentives, organizations’ unmotivated sales teams will suffer poor performance and decreased growth.

How to be a successful recruiter: Advice for each hiring stage


Book timeslots in your schedule (e.g. Offer incentives. Consider implementing a referral bonus program to motivate your current employees to recommend qualified candidates. Review recruiting metrics. Simply tracking metrics is not enough.

Sales Job Offer Letter template


Compensation packages for salespeople often include performance-based commission or standard bonuses (when the entire sales team achieves quotas, or when the entire company achieves its goals.) Bonuses. Sales metrics (e.g. Motivate potential sales hires to go beyond targets by offering incentives when they outperform their established goals. Bonus: [ Mention any bonus options you offer, e.g. X% of your base salary based on annual team target. ].

The recruitment process: 10 things you need to master to succeed


On the flip side, a beautiful careers page, positive online reviews from employees, and rich social media pages can give you bonus points, even if your brand is not widely recognized. In this case, a referral bonus could work as an incentive.

15 Recruiting Techniques to Hire Like Box


We took note of Box's sourcing tactics, and the metrics and tools they used to build one of the top hiring orgs of all time. One of the things I’d recommend for people to encourage and inspire people is a book called Switch by Chip and Dan Heath.