What is the best way to distribute an
earned incentive program in a service organization, by percentage of annual
salary or evenly per employee?
Marcia Faschingbauer, Excargo Services Inc.
Marcia Faschingbauer, Excargo Services Inc.
When it comes to
earned incentive programs, there are several considerations that I suggest you
undertake diligently. With respect to whether the incentive is paid through a
percentage of salary or evenly per employee is relative to the culture.
The short answer
is that offering an incentive for the performance of an entire organization or
team, with each individual benefitting from the outcomes of the whole, has a
much different effect than making the incentive individual to each person’s
performance. And, one can expect a difference in how members engage one another
in how they team. This includes how they collaborate, share ideas, and support
one another. This is what leaders often wrestle with when implementing
incentive programs and why it is important to align the program to your culture,
and how you want people to work with each other.
In a more
participation oriented culture – one in which every member is contributing to a
shared outcome and the emphasis is on shared reward – the even distribution is
a more aligned approach.
In an expert
culture – one in which each individual is responsible for their own performance
– paying a percentage of the individual’s salary that is commensurate with the
performance outcomes is more aligned. The better the individual performance,
the higher the percentage and the lesser the performance, the lower the
percentage. Rewarding everyone at the same level can easily undermine the
desired effect of everyone being individually responsible for performance.
Along with
making sure the program fits your culture, there are some other basic
considerations that you’ll want to pay particular attention to, including:
·
- Linking pay directly to performance outcomes in a measurable way, using measurements and performance outcomes that are clearly articulated and easily tracked.
- Identifying and articulating clear standards for the performance and making sure that definitions of success are well understood. It’s sometimes easy to track numbers while failing to measure how they are attained or whether the proper quality is demonstrated. This is particularly true in service environments where it is important that the results are in alignment with other operating and customer service standards.
- Be sure that the performance goals tied to the incentive program are achievable. A stretch goal for the sake of having one is never a good idea. Yes, the performance goals have to be meaningful and challenging. They also have to be achievable. Good incentive programs build to higher levels over time, leveraging past and present success. Remember, what gets done and rewarded, gets done again.
- It’s important to communicate clearly and communicate often. Letting people know where they stand is important. It’s hard to beat a good scorecard or dashboard. It’s even better if the employee or team can be part of the reporting process and always aware of the performance outcome (and again, how it links to the incentive).
- Good programs are reviewed often. Don’t be afraid to make adjustments as you go. It’s important to be transparent and if changes need to made, to act in a timely manner. Otherwise you may have a conflict on your hands that may be hard to recover from.
- Don’t overlook the importance of establishing clear timing. Periodic bonuses and payouts are only as good as the consistency and timeliness with which they are executed. The closer the incentive is delivered to the performance, typically the better the impact. Immediacy creates a sense of urgency, motivating people to want to do more.
- In service environments, often the impact of quality and customer relationship improvement can be overlooked. While more difficult to track, these are key elements of performance improvement and should not be overlooked.
- Lastly, be sure to offer the required training and coaching. You want people to achieve higher levels and you want to everything you can to help them receive what they deserve. It’s in the best interest of the business to do so.
That being said,
I am also a big fan of spontaneous reward. A form of a more casual approach
that leverages timeliness and shows people you’re always paying attention and
willing to reward whenever you can. This approach also requires leaders to pay
more attention to what matters most… building and developing talent.
Thank you for
joining in the conversation.
