Incentive Programs: The Five Pillars of Successful Implementation

The following article is a series of three articles on Incentive programs by the incentive and remuneration specialist, Mike Honnet from Mike Honnet Consulting.

If you want the full overview on Employee Incentive Schemes, just follow this link...

And if you want to read Mike’s article on how to sustain your Incentive plan, follow this link...

The most important key elements for successful implementation of incentive schemes are the following:

Vision

You can increase the probability of success by taking the time to plan and prepare properly for the implementation of the incentive scheme.

You must ensure that the scheme is designed to fit the strategy and culture of the organization; involve your people in the design process; and, in doing so, secure "buy in" among the opinion leaders on your staff.

In addition, you must chose measures that are - or are closely related to - business metrics; and include baselines for each measure in your vision.

This will put you in a position to define the intended outcome of incentive programs and to track its performance. That is, it gives you a way of holding your HR people accountable for business results.

Innovation and Risk Taking

You must be daring for your incentive programs to succeed. If you treat reward as a cost center, like water or electricity - something to be used, but sparingly and not wasted - it is doomed before you start.

You must be prepared to pay significantly over the odds for peak performance. Your risk-taking in this respect encourages others to take the risk of innovating - and standing a chance of achieving unbeatable results in the process.

Fixed Duration

The most successful incentive programs are those that have a fixed (and short) duration. Peak performance demands peak effort and this requires the kind of intense focus that can often not be sustained in the long term, year in and year out.

If your scheme does not have a fixed duration (or a fixed date for review) which is known in advance and not more than a year or two away, it will gradually lose impetus; people will take it for granted; and it will eventually have lost its impact on business results.

Decentralized Design

Traditionally, organizations centralize reward system design, for reasons of parity, perceived fairness and control. Unfortunately however "one size doesn’t fit all" in incentive design.

Different business units have to be allowed to design their own incentive programs and, if necessary, to implement designs that are different from each other.

Allowing decentralization in this way does not equate to losing control and accountability. You should still require the business units to use the same design principles and protocols.

They should still be expected to monitor and evaluate their incentive programs against outcomes and objectives agreed in advance; and they should still report on the bottom line impact of implementation of the scheme.

Separation from Base Pay

Incentive pay should always be separated from base pay. Because incentive pay is not part of base pay, it must be re-earned every year (or other accounting period). This achieves two ends, namely:

• It enhances the motivational value of incentive pay by underlining its connection to performance.

• It prevents base pay from becoming an impossibly high fixed cost.

Rolling incentive pay into base pay (e.g. by granting "merit increases") has a compounding effect over time and you will find you simply have too much expense in your fixed pay costs.

It also causes "pay compression", which prevents you from differentiating adequately, in their pay, between outstanding and merely average performers.

If you would like assistance in making work rewarding for your people, or to discuss topics raised in this article, please contact Mike via his website at www.mikehonnet.com

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