With the economy forcing many to tighten their spending, many businesses and organizations today are re-evaluating their employee incentive compensation plans. The uncertainties of the market are prompting many employers to hit the reset button.
Nonetheless, employers will want to take the following strategic steps regardless of the times:
- Identify those valuable employee skills that the company should recognize and prioritize.
- Identify those employee behaviors that the company should influence and reinforce.
In fact, when effectively thought out, an incentive compensation plan can be an instrumental tool for aligning employees toward specific targets. Employee motivation and employee retention remain as two sustaining drivers behind an incentive compensation plan.
After all is said and done, when employees hit those identified targets, employers should expect gains in terms of higher employee productivity and improved bottom-line results.
So this is when psychology and business come together to achieve positive outcomes for everyone involved. Let’s say, for instance, that your business has a bottom line goal of achieving increased revenue or sales numbers. Plainly put, in order to do that, you will want to make sure that all employees have some “skin in the game.”
As you can probably imagine, high performers thrive on goal setting, and they look to organizational leadership to provide that information. Coincidentally, after executing an incentive compensation plan, many employers discover that other employees are more likely to emulate the behaviors of those top performers as well.
So basically, you want to link all employees directly to the company’s interests through the incentive compensation plan. In order to do that effectively, you will want to ensure that the plan is well-designed, well-communicated and well-executed. You do this by aligning the pay design with the administration of employee performance.
What do we mean by well executed? By contrast, a poorly executed plan happens when the employer and the leadership team do not adequately communicate what is known as the “value-creating matrix.” This matrix is a very important component of the compensation structure.
In other words, it is all about communication and education.
- Avoid over generalizing with “fill-in-the-blanks” statements such as: “Ah, we have just come up with this great incentive program.”
- Instead, communicate in specific and detailed terms. “Here is our employee incentive compensation program. Here is exactly how it works, and here is exactly how you can be successful.”
Again, incentive compensation plans aid you in creating employee connections to the company’s interests. You accomplish this goal in various ways, but most importantly, you want to ensure that you and the leadership team:
- Give employees the details they need so they can make informed decisions.
- Fairly compensate employees for the desired actions and results.
- Commit to positive change.
You are, in essence, putting the employees in control of their variable pay components. And when they clearly understand how the employee incentive compensation plan will ultimately reward them, they will take control and make those successes happen.