by Mary Dunlap, CFP®
If you want to create an incentive program to reward the employees who really help the business, or if you've tried an incentive program that failed, you need to intimately tie incentives to employee engagement and business results. This article will give you a process to do that.
For an incentive program to be successful, you must first have engaged employees. Disengaged employees won't deliver the productivity to achieve the incentives, let alone impact the business results. Look for more information on how to improve employee engagement in the July/August issue of Practice Management Solutions.
Why Incentive Plans Fail
Past experiences and studies have shown that pay-for-performance or incentive plans fail for some or all of the following reasons:
Not helping employees understand the business goals that they will be assigned or will be measured against. Employees may not see and address problems that affect the results. They may not "buy in;" they may do the minimum and expect the maximum reward.
Not accounting for unintended results. Incentives could unintentionally focus the employee on certain job duties and neglect others-which could have a negative impact.
Not providing employees the training to effectively achieve the goals for the incentives.
Not having motivated, engaged employees who work to achieve the goals for the incentives.
A profit-sharing plan that has no profit; the company may not have the profit, even though the employees work to impact the business results.
Not having an appraisal system; no measurements (defined and written); no progress meetings; no feedback to congratulate progress and to help employees get back on track. No one really knows where they are in relation to achieving the incentive.
7 Steps to Tying Incentives to Results
Incentive programs-whether short- or long-term, a one-time occurrence or multi-year event-should involve these core components, which create a process to ensure success. A shorter duration or one-time occurrence program could involve fewer components.
Consider a "smarter" process for developing your next incentive program:
- Specific to duties, actions and intended results
- Measurable to provide fairness and clarity to objective and subjective criteria
- Achievable for employees, so that employees feel they can achieve even more next time
- Results oriented
- Track the results
- Employee involvement and acceptance
- Reward for the future as well as present
1) Specific to duties, actions and intended results. Start by looking at the end-what results does the business want? Results can be tied to current business plans or can lay a foundation for future business goals. Is the incentive program rewarding short- or long-term results or a combination of both? Tying company vision and culture to incentive objectives helps employees become fully engaged; they're not just collecting a check. Ask yourself: What employees need to be involved to generate these results? Should all those employees be eligible for an incentive? What employee behaviors will best help to reach the incentive?
Example: A financial planning firm wants to build its client service model over the next two years by implementing a range of consulting services. The firm also wants certain follow-up guidelines and deadlines to ensure timely account set-up and transfers, exchanges or rollovers from other institutions.
- What results is the business expecting? Increased revenue per year? Increased client satisfaction and more referrals?
- Which employees do you want to reward with an incentive because they would be taking on duties over and above what they currently perform?
- Would the employees need to learn and display behaviors that were not previously required?
The firm determines that the office manager will need to oversee the project and meet the timelines over the next two years. The manager will need to supervise some employees more than her current duties require. The office manager would have incentives tied to coaching, supervision, project management and time management skills. Applying correct behaviors will motivate other employees, correct problems and keep the project on time and on budget.
2) Measurable to provide fairness. What activities and behaviors need to be measured?
Example: The office manager's activities and behaviors to be measured are:
- Project management: You can reward for creating the processes, bringing the project under budget and/or on time, and providing documentation and consistent results.
- Behaviors: You can reward for teaching and motivating employees to work in a different manner.
3) Achievable for employees. Are the actions, behaviors and results achievable? The incentive program should motivate an employee to learn and do more in an effective and efficient manner. If an employee doesn't achieve all of the incentive, there should be a process to evaluate and show the employee how to accomplish more next time.
4) Results oriented. Tie the actions and behaviors to the results you want to see.
Example: The office manager's project management skills would be rewarded for completing various stages of the client service system within certain key dates and for creating processes that should increase revenues or profit. The office manager's behaviors would be rewarded for changing other employees' work, motivation and behaviors to produce excellent client service. The office manager realizes how her skills and behavior can impact the outcomes and the incentive she receives.
5) Tracking the results. Who will track the measurements and results, and how? Actions are easier to quantify; for behaviors, it may be more challenging. Many actions can be tracked with a meeting, other written or verbal communication or the physical delivery of the expected items. Part of a regular briefing with employees can cover what is happening in achieving the incentive.
6) Employee involvement and acceptance. Anyone offered an incentive needs to be involved-in varying degrees and amounts of decision-making-and accept the incentive program. Generally, the employer provides the goals, results desired and the rewards, but employees give input on what activities and behaviors are their responsibilities and what rewards might be more special to them.
The employer needs to give guidance during the incentive period. Waiting until the end of the incentive program to show employees where they are ineffective is demoralizing. Employees also need to understand their responsibilities in this process; they should be asking questions, communicating the status of issues and asking for help if they need it.
7) Reward for the future and the present. Sometimes in a down economy or for future business changes, you need to lay the foundation for change by rewarding for actions and behaviors in advance of achieving the goals. This can be challenging for employers who are working with a restrictive budget. Here are some things to consider:
- Distinguish and reward your top performers in a manner that is fair-not equal, but perceived as fair and justified. You can't give automatic increases to compensation all the time.
- You should not reward extra for what a team member is already fairly compensated for. If the compensation is not fair, that's another issue.
- Make it part of your culture to distinguish the rewards for top performers, but also show how disengaged employees could work to become top performers and what resources are available to them to accomplish this.
- As the business owner, sometimes you have to reward your employees before you reward yourself, especially if you are building a foundation for the future and need certain actions, behaviors and results from employees now, not later.
- In a down economy, even a small reward can be greatly appreciated.
If you build an incentive program that is "smarter," you'll keep employees engaged and achieve your business goals.
Mary Dunlap CFP®, heads Mary Dunlap Consulting, which helps financial planning firms attract, develop and retain the best people for their teams. If you have specific questions about incentive programs, contact Mary at marydunlapconsulting@verizon.net .
