Patty Hargrave

HR Can Help Your Company Stay on Track

Look Beyond Base Pay: Link Employees to Organizational Goals with Incentive Pay

 

“You get what you reward. Be clear about what you want to get and systematically reward it.”

                                                                               ----Bob Nelson, Best Selling Author 

Are you looking for a way to potentially boost company revenues and employee performance levels at the same time? In a previous HRTools.com Insight, I described how incentive pay is a strategy employers can use in order to reinforce employee behaviors that can ultimately impact their bottom lines. 

Developing an incentive pay program is not as simple as it sounds, however.                                                                                      Basically, you want such a program to work for you and not against you. In order to develop an effective and comprehensive program, you will want to keep in mind the following precautions: 

• Avoid using a subjective approach or developing a program that is really only a reward geared toward a select group of employees. Rewards are fine, but they should not be considered as part of a comprehensive incentive pay program.
• Remember your program goal should include all employee groups and for an entire time period. For instance, an annual incentive pay program might start on Jan. 1 and end the same year on Dec. 31. Or a quarterly program might run from Jan. 1 through March 31.
• Your incentive pay programs should not encourage individual employees to do nothing but highlight their individual accomplishments, at the expense of the team. In other words, you want incentive pay used as a light to shine on the collective performance of the entire organization. Otherwise, you might be faced with unintended consequences and your organization could suffer as a result. 

Consider these seven basic steps when developing your program.                                                                                                               Now that you’ve considered the above precautions, the following steps may help you develop your program so you and your employees can achieve the results you need and want to see: 

1. Set the goal(s) – what do you want to achieve and how should you prioritize those aims?
2. Decide tactics – how will you reach those goals? Through performance? Through production or sales?  Are the goals dependent on investments or the markets? Can they be measured and rewarded?
3. Develop targets – what specific targets are you going to set for each goal?
4. Figure payout amounts – how will you determine the incentive pay program budget? What is it worth, and what can you realistically stand to spend on it? What can you invest in it? If only partial goals are met, will the payments be paid in increments? Or if goals are met to a certain level, are you going to pay part of the bonus?
5. Select participating employees – who is eligible to participate? As mentioned above, you run the risk of alienating other employee groups if incentive pay is only offered to one group or to certain select groups of employees. This approach can end up hurting morale and your organization in the long run.
6. Communicate the plan – how will you announce the plan and communicate all the details?
7. Train managers and supervisors – how will you provide training to those managers who will have input and directly affect the pay that employees potentially receive? How will these managers and supervisors know how to measure the results and handle this step in an equitable and fair manner? 

A well-developed and thought-through incentive pay program can help motivate your employees to perform at higher levels. If you let employees know what you expect and communicate those goals and the corresponding payouts, I completely agree with Bob Nelson: “You get what you reward…” 

Incentives don’t always have to be centered on monetary awards. In a future HRTools.com Insight, I will provide information about effective nonmonetary incentive programs.

The information contained in this document is for general, informational purposes only and is not intended to be legal advice. This information is not a substitute for the guidance of a professional and should not be relied upon in reference to any specific situation without first seeking the advice of a qualified HR professional and/or legal counsel regarding applicable federal, state or local laws. HRTools, Insperity and their respective employees make no warranties, express or implied, and make no judgments regarding the accuracy of this content and/or its applicability to a specific situation. A reference or link to another website is not an endorsement of that site or service.