Structuring incentives effectively takes thoughtful consideration and personalization. While this process can be time-consuming at the outset, we believe you can see results from making the effort to tailor incentives.
Forbes acknowledges that this is a complex area. According to its article How to Build Incentive Plans that Actually Work:
Look at the flaws in the usual bonus logic, starting with individual performance. In a few jobs, mostly sales-related, you can actually measure individual results. But if the results are due to factors that had nothing to do with the salesperson’s efforts—competitor changes, new technology, regulation, whatever—are we really measuring individual performance? In most jobs, moreover, performance reviews depend wholly on a manager’s subjective assessment.
The first level of creating an incentive plan is thinking about what specifically motivates each team. For example, accountants and sales reps have varying goals and even personality types that should be considered. Beyond that, your company may benefit from customizing incentives at an individual level. This can apply especially to non-cash incentives, where employees are inspired to go the extra mile for a particular item or work perk. Not everyone wants a fancy coffee machine or the flexibility to change their hours. Maybe they hate espresso and love their regular routine! It may be overly difficult to accommodate preferences at that detailed of a level, so choices should be available.
If you take a customized approach when it comes to cash, the differences should be fair. Make sure they are merit-based so employees aren’t left wondering why someone got a 5% bonus and someone else received 15%. In fact, we’ve compiled a few fairness principles that may be helpful as you devise your incentive plan.
1. Clarity is King
Spell out the terms as clearly as possible at the outset. Make sure that your system is objective, clear, well-explained, and quantitatively-based.
2. Gather Employee Feedback
If possible, managers should meet with employees and involve them in the process while also incorporating the observations that management has made over time. If you aren’t able to gather this level of detailed visibility, offering choices is usually a good idea.
3. Expect Transparency
Even your official policy states that incentives and bonuses should stay private, information tends to get out. You don’t want anyone to feel undervalued in comparison to others, which can sow employee disengagement and resentment.
4. Justify and Explain Differences
This goes hand-in-hand with clarity, but is important to address in its own right. In any case where employees have access to different incentives (as opposed to all having the same choices), make sure they understand why.
Cash differences could be based on:
- Seniority – Offering higher payouts for senior staff shows indicates that you value loyalty, experience, and the development of mentors within your organization. Attractive cash bonuses tied to seniority show the benefit of investing in a long-term career with your company.
- Experiences – These can include recruitment, intra-company advocacy groups, and volunteering. Choose experiences that everyone can access, rather than providing ongoing rewards tied to special opportunities that are not available to other employees in a similar capacity.
- Quotas – This is a common basis for incentive differentiation. Quotas and sales goals are effective motivators, so long do not carry a sense of unfairness. Employees should believe that the quotas are being fairly determined from the outset. Think carefully about the regions that each rep can access, and how sales growth is measured and rewarded. Consider the effort required for relationship maintenance and relationship development, respectively. Gathering employee feedback, perhaps anonymously, can be useful to better understand the dynamics, opportunities, and challenges. In the end, quotas should be as objective and merit-based as possible.
If it seems like these customization efforts are only possible at a small company, think again! Forbes suggests another way to frame it in How to Build Incentive Plans that Actually Work:
Big companies are mostly just collections of smaller businesses, each with its own local economics. A large company that pays bonuses based on a combination of unit and corporate performance—and that makes the whole thing objective, transparent, generous, and self-funding—will find that people soon come to understand the connection between performance and rewards.
At the end of the day, it is all about making sure that there is a meaningful and tangible connection between effort, outcome, and reward.
IncentViz, our easy-to-use solution to reduce cost and maximize the value of each incentive program, can help you customize the most effective incentives for your team. We’re happy to set up a demo with you!