Compensation is an important recognition criterion, and this why makes it so complex. If it is justified by strictly professional elements, there are also an emotional interpretation, a personal questioning, etc., which are, after all, very human.
Incentive compensation is a sensitive subject. Setting up a bonus scheme requires advanced thinking and clear and well-designed communication to avoid pitfalls. Nevertheless, given the complexity of the implementation of a variable pay compensation, it is important to be vigilant on some practical aspects to avoid setbacks!
In this article, focus on the 4 big pitfalls to avoid when it comes to compensation!
1) poor EVALUATION OF NATIONAL OBJECTIVES
Whatever its purpose, an objective must be precise, concrete, acceptable and realistic. Should also be specified the resources allocated, the method of work required and the deadlines expected;
A national objective over or under estimated demotivates employees
In order to set the individual requirement, the first step is to set a national goal. Nevertheless, it can be misjudged, upward or downward. Thus, individual and / or collective objectives which are inconsistent with the economic environment of the company, the market, or the resources available to employees can lead to a real lack of motivation. This drop in motivation is felt all the more if a poor evaluation and by extension objectives setting occurs year after year, resulting in some disinterest on the part of employees for the challenge to get an incentive compensation.
Two situations may arise from a poor assessment of the national objective to be achieved. First, if it is undersized, employees will quickly reach their individual goals before the end of the cycle. They will have the opportunity to go beyond their objectives, which will peak after a while and will therefore no longer have any constraints or obligations to continue their efforts to perform until the end of the cycle. In the best case, the most conscientious employees will continue to work in order to build an “advance” for the start of the next cycle.
Then, in the case of an oversized national goal, there are equally dramatic consequences for business strategy. Indeed, during the cycle, employees will realize quite easily that they will not get bonuses or very little despite all the efforts made. From the moment employees understand that it is useless to continue to invest fully, they simply give up the idea of fulfilling their objectives. Nevertheless, it should be noted that the real impacts in terms of motivation will only be felt at the beginning of the next cycle.
2) APPLY A standard INCENTIVE COMPENSATION SCHEME WITHOUT REFINEMENT
Goal setting must be equitable within your teams. These must be identically ambitious and realistic for everyone: it is imperative to ensure a level of homogeneous difficulty.
For a bonus scheme, equality doesn’t mean fairness
It is important to ask the question of the equity of an incentive compensation scheme. Indeed, offering the same conditions of achievement and achievement of objectives to each beneficiary is paramount. Thus, for the same level of effort, employees must be rewarded in the same way and earn an equivalent level of bonus.
The idea is that all beneficiaries are on the same starting line and benefit from a fair system in their goals races. Be careful, however, not to confuse the idea of equality with that of equity. Indeed, a coherent variable pay system is fair but not necessarily equal. In addition, to offer two employees having the same job position, but in different environments, exactly the same mode of achieving objectives is not fair. A fair incentive compensation system is one that takes into account the specifies of an economic sector, the type of customer or product portfolio or the geographic area in which the employee operates. Applying a single system of objectives, without taking into account the specificities of each professional situation, may seem equal but is nonetheless unfair and therefore ineffective.
To another extent, it is necessary to focus on the phenomenon of financial rent situation and other elements that may be involved in the setting of objectives, individual and / or collective. First, the rent situation that describes a commission with little portfolio turnover implies a "lesser" investment by the employee. Indeed, the client portfolio is rather stable and the employee has a more "comfortable" position than another who has a very volatile and non-loyal portfolio. This parameter is to be taken into account when setting objectives. In addition, seniority is also to be considered in this process as it may represent a bias.
Finally, in the negotiation of target setting, some employees will be better able to negotiate than others. Thus, we can ask ourselves the question of whether to grant this opportunity to employees or whether, on the contrary, applying a corporate policy that is in no way modifiable is the most equitable solution.
3) SET UP INAPPROPRIATE OBJECTIVE CALCULATING SCALES
According to a well-known formulation, any objective must be "SMART": Specific (dedicated to a specific goal), Measurable, Achievable, Realistic, and Time.
Objectives setting must be motivating for all employees, not just for the best
Applying an inadequate target setting can negatively impact the development of your business. Indeed, some employees can quickly realize that, despite the efforts provided, the expected bonuses will not live up to their expectations. They will no longer be financially motivated to invest more and stop their efforts. They will not go to the end of the cycle being no longer motivated by a potential bonus gain.
In parallel, if the incentive scheme does not give enough importance to the top-performers, they will be tempted to limit their actions. In addition, if the best employees receive bonuses that are only slightly higher than a moderately well-performing employee, it will be difficult to continue to motivate them to the end of the incentive cycle.
4) IMPLEMENTING POOR COMMUNICATION: LACK OF TRANSPARENCY
A lack of transparency of the information results in an information distorted in the end and therefore a bad broadcast message, which may be misunderstood.
Communicate regularly and simply on your compensation plan
In order to encourage employees to give the best of themselves, it is essential to make them adhere to your incentive compensation policy and, by extension, to your company strategy. Indeed, communicating, explaining the methods of calculation and goal setting is essential to the success of your incentive compensation plan. In addition, you need to be able to provide employees with enough information to be able to take the lead on the evolution of their own incentive cycle. The system of calculations and achievement of targets must be controlled and understood if you want to see your employees invest fully in their work.
Understanding the operating rules of the incentive pay plan and its purpose is a prerequisite for motivating employees. Providing explanatory documents, organizing information meetings are actions to put in place to facilitate the accession of beneficiaries to your strategy.
Finally, it is important to ensure a personalized and regular follow-up of each employee who benefits from an incentive compensation plan. The goal is twofold: make regular points during the cycle on the evolution of its bonuses thanks to clear media and keep his motivation in good shape!
If you want to know more about how to speack about incentive compensation with your salesteam, check the following blogpost : 3 key principles to speak about incentive compensation with your sales people
