How to Make Your Company's Incentive Plan Work Harder Than You Do By Larry Fish
President, GreenSearch

"I'm the only one who seems to care around here." "We don't have a formal incentive plan, we try to give them something at the end of the year or at Christmas time if the company's doing well." "We've tried to put a plan in place, but we just haven't decided what the criteria should be."

We hear these types of comments from managers and business owners who are looking for ways to effectively design incentive plans that will reward good performers in their companies. These are the people who have figured out that sharing some of the financial success of their companies with employees is a wise practice. They know instinctively that if they do it correctly, these plans can help others become more interested in their company's results.

Incentive plans which are poorly designed, communicated and implemented are worse than no plans at all. Consider this example. Some companies opt for a totally discretionary incentive plan. What this usually means is that if the company is doing well and if the owner is feeling generous, he or she may distribute a specified amount of money to certain employees. The owners obviously feel good about this because it is an opportunity for them to share some of the company's financial success with employees whom they feel have contributed to it. The employees, however, may have a different take on the situation. Certainly they are happy to receive the money and no one is going to refuse it. But, they wonder how the amount was determined and what they did to earn it. Sometimes this lack of connection between one's contribution and the level of reward one receives takes a bad turn in the road. "Gee, how did the owner decide on what my share of the incentive should be. Maybe, it should have been a little more." All of a sudden the best intentions of the owner have been mis-read by the employees. When this occurs, many owners think to themselves that this will be the last time they ever try to do anything like this for their employees. In short, everyone loses. Clearly, it doesn't have to be this way.

Discretionary incentive plans are okay, but they have limitations. The biggest draw back to a discretionary incentive plan is that there are no performance standards against which the participants can track their progress. They have no way of knowing how they are doing.

The GreenSearch philosophy in regard to incentive plans is very straightforward. Get the biggest bang for your buck you can out of your plan and take the time to think through one of the toughest plan design questions around; "What do I want this plan to help me achieve?"

In addition to this philosophy, we have some guidelines you should consider before deciding to install an incentive plan in your company.

• Incentive plans should be driven by results, not activities.
• These results must be clearly defined and able to be measured.
• Results should be linked to the level of business success the company is trying to achieve.
• Thought should be given to linking the performance of the participants in the plan in such a way that they must function as a team if they are to achieve the highest possible level of payouts the plan offers. This prevents one department from succeeding at the expense of another department or functional area.
• Companies considering installing incentive plans must have accurate financial information upon which results are calculated.
• Regular meetings should be conducted involving the plan participants sharing information which helps them track their performance against the results they are seeking to achieve.
• The plan should encourage and reward "stretch" levels of performance versus rewarding minimally acceptable levels of results.

There's a certain amount of magic that occurs when people begin to make the connection between what they can earn and the level of control or influence they have over making those results happen. It becomes even more powerful when they start sharing their resources and making things happen as a team. From an owner’s perspective, it gets even better. All of a sudden they are not only ones, "who care about things around here."

Recently, GreenSearch installed an incentive plan in a local company here in Atlanta. We spent a lot of time designing and discussing the plan with the owner. The day arrived when we had to explain it to the participants. We thought the meeting would take about an hour and a half. We explained how the plan worked, the results we hoped to get and how we would measure them. We emphasized that this was a team-oriented plan and that if people worked together, the results would benefit everyone. Fifty-five minutes into the meeting, the participants fully understood the plan and their roles in it. They then turned their attention to discussing the problems they knew could prevent them from achieving the best results possible. Do these plans work? You bet they do.

Do you want to provide more effective incentive opportunities for your employees?

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