As employers struggle to fill open positions in their companies during The Great Resignation, they find themselves competing with other employers to pay more for workers they want to keep or attract, often with no real sense of how to do this in a reasonably efficient way. Anyone who thinks this is the first time this has happened is clearly not a student of even recent history. Many companies are producing much higher profits than before the coronavirus hit as a result of strong demand, and their workers know it. So what does it take to keep them, to make them more productive and happy about it besides? A couple of words that come to mind are appreciation and trust. If that doesn’t cause you to stop reading, let me keep going…

We think a significant reason for the lack of trust that has developed between employees and employers over the past couple decades has been earned. Just ask any salesperson what goes through his/her mind when their company announces any changes to their compensation plan and you’ll hear something like: “OK, I wonder what they’re taking away this time?” The reality is that many companies have not earned that trust – often adjusting bonus plans to limit success payments, crafting elaborate plans to favor top executives despite ostensibly offering equitable sharing of rewards, promising a lot but delivering a lot less, and so on. As for workers other than the sales team, it’s even easier for them to feel taken advantage of, since their efforts don’t get the vocal appreciation that comes from beating quota, a big sale or a large new customer.

It is true that a successful incentive compensation plan needs to be adapted to the level of worker that management is seeking to motivate – factory workers will not be moved by the same options that move vice presidents. It is also true that responsive incentive plans are more work to develop and administer than straight salary plans, and the more responsive the plan the more administration it will likely require. But once you get past the design stage, most of the work is around performance evaluation: goal setting, getting buy-in, evaluating results and monetizing those results in a credible way. Performance evaluation that should be taking place anyway, don’t you think?

If you want to get it right for your company, and gain the benefits that incentive compensation can provide, here are some questions you should ask yourself, and incorporate the correct answers in your plan design:

  • Is there a defined corporate strategy that is communicated so employees understand what the company wants to accomplish?
  • Does the incentive plan drive behaviors that lead to the objectives outlined in its business plans?
  • Do employees actually experience appreciation for the work they do, even when it’s only indirectly furthering the company’s goals and objectives?
  • Does management know what competitors are paying for base pay and incentive compensation so the company can be competitive in its offerings?
  • In addition to the company’s performance, do employees know what specific individual performance goals they must meet in order to maximize their share of any bonus plan?
  • Do personnel receive periodic, objective, helpful feedback on their performance throughout the year in an easy-to-understand performance evaluation process?
  • Do employees know how well the company is doing throughout the year because of proactive communication?

A lot of work? Yep! Compared to endless recruiting, interviewing, and exit interviews? Not so much.

We are Your CFO for Rent.

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