What Incentives Can Do, What Incentives Cannot

Compensation Force

Incentive compensation. Powerful stuff when used well and - unfortunately - potentially even more powerful when misused and misdirected. Chip and Dan Heath said it well. Incentives are dangerous, and not just because people game them. Incentives are like that jet engine.

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.

Why is Three the Magic Number for Incentive Plan Metrics?


The Rule of Threes states that there should be no more than three metrics involved with any incentive plan. But what makes the number three so powerful when it comes to incentive plan design? Finally, focusing on just one or two metrics could work well in theory.

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.

3 Reasons Why Metrics Go Wrong

Compensation Cafe

Sadly, in some areas over the years, that’s become twisted to focus on the metric and not the behavior or goal underlying the metric. Jerry Muller, history professor and author of The Tyranny of Metrics, recently elaborated on this challenge in an article in Aeon.

Money for Motivation: How Incentive Based Pay Works


We want to instantly think that we can drive performance or discourage behaviors through monetary incentives. Here are a few: Bonuses. Group incentives. This is identical to the fixed/variable cost discussion as it pertains to economics as well.

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.

Cafe Classic: Reviewing Your Incentive Plan: A Three-Tiered Conversation

Compensation Cafe

Editor's Note: Reviewing existing incentive plans is part of the job for many of us. One of the temptations we encounter is to try to benchmark our way into the right plan structure and metrics - looking externally at so called "best practices" in order to figure out our next design move.

Employee bonus programs: What’s right for your company?


If you think your business is too small for an employee bonus program, consider these two questions: Have you noticed less productivity or a decline in employee morale? A meaty bonus program could do the trick. But, before you hit the ground running, take a moment to dive into what kinds of bonuses are out there, as well as what goes into creating a bonus program. Employee bonus program basics. First things first: How are employee bonuses defined?

The Elements of a Strong Incentive Plan


Designing, managing, and communicating incentive plans are some of the most challenging hurdles HR and compensation teams face today. Likewise, good incentive plans are well-balanced, can be easily understood by employees, and are difficult to game.

Using Incentive Compensation Software to Drive Performance


Incentive compensation is the process of paying employees based on the performance of an entity. For this reason, many organizations have increasingly turned to incentive compensation software. Incentive Compensation Examples. Incentive Compensation Best Practices.

Cafe Classic: Is it Safe to Incent Safety?

Compensation Cafe

Editor's Note: Continuing our end-of-summer Classic week here at the Café with the question "are incentives equally applicable to -- and appropriate for -- all areas of human endeavor?" . I recently came across an interesting article in Incentive Magazine about safety incentives.

A Fresh Look at the Metrics in Your Management Incentive Plans


Professionals in the human capital space are often confronted with questions about business performance metrics, especially when it comes to plan design for short-term and long-term incentives. More concerning is the likelihood that most managers don’t have a clue how to personally impact those results—bringing into question the whole notion of incentive. Boards of directors that reluctantly approve bonus payouts, when they know darn well the goals were sand-bagged.

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.

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%.

What Would Einstein Do (If He Had to Solve YOUR Pay Problems)?

Compensation Force

Well, help comes our way from an unexpected source: renowned physicist and Nobel Laureate Albert Einstein on solving tough problems under pressure. Base Salary Management Bonus/Incentives Compensation - General Metrics/Analytics Pay for Performance

Develop Grow Achieve - 3 Tiers for P4P

Compensation Cafe

Metrics for development can be tricky when looking for direct alignment to pay. These are the kind of goals that work well for regular coaching sessions and a loose link to pay. In individual terms we should focus on those metrics that drive growth, rather than the end result of growth.

Is Team Chemistry the Next Big Thing in Performance and Rewards?

Compensation Force

More quantitative attention is being paid to how well players improve the in-game performances of their teammates. As Keith will point out, it is the best metric for how an individual player really contributes to the success of the overall team.

Are You Using Pay as a People Manager?

Compensation Force

Try taking away an incentive plan, however ineffective or dysfunctional, from a manager who is convinced it is the cornerstone of motivating his or her staff. Can pay - and specifically incentives - ever function as a true proxy for management? Bonus/Incentives Pay for Performance

Your Employee Referral Program Guide: The Benefits, How-tos, Incentives & Tools


Your Employee Referral Program Guide: The Benefits, How-tos, Incentives & Tools. Here’s everything you need to know about employee referral programs, including benefits, how-tos, incentives, and tools. Collect metrics on any online communications so you can try to gauge interest.

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. A colleague of mine often says that the problem isn’t that P4P programs don’t work well, it’s that they work TOO well.

Cafe Classic: Before You Link Pay to ANYTHING.

Compensation Cafe

As any of us who've considered using customer feedback metrics in incentive design know, this can be a potential minefield. Markey's cautionary advice on pay linkage is well written and worth our consideration beyond the boundaries of customer feedback metrics.

The End of Compensation, Rewards, and Human Resource Management

Compensation Cafe

We ask our consultants and researchers to supply the latest artillery to help our troops stay well-ARMED (‘E’ for Engagement; ‘D’ for Development). We define, measure, and report how well we’re doing by proffering numbers, fancy graphics, and storylines about the state of our ARMS.

Cafe Classic: Pay as a People Manager

Compensation Cafe

I will never forget one executive I worked with in designing (what was meant to be) a broad-based incentive plan. Try taking away an incentive plan, however ineffective or dysfunctional, from a manager who is convinced it is the cornerstone of motivating his or her staff.

Cafe Classic: The Complete Job

Compensation Cafe

You'll try to be as objective as you can, considering quantifiable metrics like deadlines met, sales targets achieved, projects launched, budget compliance and products or services delivered. For many companies performing the "complete" job encompasses the how as well as the what.

Thinking about Strategy for the New Year

Compensation Cafe

To ensure a conversation will be fruitful, everyone needs to have a well-understood context as a reference. If you prepare a discussion guide well, you can have these discussions in 90 minutes. You can look at current employee metrics to further analyze your current state.

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. B - Business Critical: There are a whole lot of things that managers want their employees to do well. It really is important that each of these things get done and done well.

Because only 10% of your team really matters, right?

What is Paul Thinking

Say you have 100 sales people (or employees with a quantifiable metric) and you want to do something to drive increased performance. Most of the time you, or your VP of Sales will suggest an “incentive” program to get people focused on sales and reward those who sell more.

The Missing Piece of the Puzzle

Compensation Cafe

It may be self-evident, but program evaluation are studies that are conducted periodically or on an ad hoc basis, to assess how well a program is working. Failure to identify relevant metrics and trusted data that can be analyzed on a sustained basis.

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.

When you make a promise (aka contract) keep the promise!

OmegaHR Solutions

Contracts for bonuses or commissions need to be worded carefully. In the interview process, he told us a story of why he was no longer with the very well-known company with whom he had been employed. Store profitability was a significant factor in determining the amount of the bonus.

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. They have well-established company cultures and often focus on excellence before innovation.

Cafe Classic: Three Connections to Meaningful Rewards

Compensation Cafe

The million-dollar question is, of course, how to do financial incentives well -- and in a manner that reinforces the purpose and meaning of work. We should already know this, but our efforts to design financial incentives often suggest that we don't. .

Where Have All the Raises Gone?

Compensation Cafe

Last month The New York Times ran an article bemoaning the loss of pay raises in favor of one-time bonuses and non-monetary rewards. Aon Hewitt did not even start tracking short-term rewards and bonuses — known as variable compensation — until 1988, when they accounted for an average of 3.9

If Money Were the Solution.

Compensation Cafe

Roads and railroads would approach the safety record of airlines, whose safety and customer satisfaction metrics would also improve. Gesture politics always seems to work well. If money alone could solve all problems, every issue could be reduced to an expense item.

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. That may very well be the case too, but that’s not the focus of our analysis.

Life Cycles and Compensation

Compensation Cafe

Companies go through life cycles as well. Hiring bonuses for key talent may be used to keep the fixed cost of salaries down. Informal bonus-type programs are based mostly on company profits. Company : A large amount of assets has been accrued and companies are well established in the market. The companies she has worked with include start-ups as well as major multinationals. Life cycles exist everywhere. Example: Countries have life cycles.