Creating Powerful Incentives

By John A. Haas
Management Strategies Group

As you've read in this column before, I know that incentives work! Why? Because:

• People come to work intending to do a good job.
• Incentive measures and goals define what a good job means in any particular time period.
• Therefore, people strive to achieve or exceed stated goals, thereby both doing a good job and maximizing their incentive earnings.

Here are some ideas that can help gain maximum leverage from your incentive compensation program (in no particular priority order):

Align goals. Be sure all individual goals are compatible with one another and with corporate goals.

Drive teamwork. If two or more participants impact achievement of a goal, have that be part of each person's goal list. E.g. inventory turns can be part of both manufacturing and sales goals.

Define appropriate measures. Credit sales reps only after invoice payment. It's their problem as well as accounts receivables'.

Double counting assures focused efforts. If introducing a new product, set new product goals in addition to total sales goals, thereby giving double credit for new product sales.

Involve participants in setting goals. Ask them to propose performance targets. People are more likely to meet or beat goals they helped set than those imposed by others.

Set goals within "line of sight." In addition to a joint profitability goal, each participant should be able to directly effect results that determine his/her incentive pay.

Allow for a unique goal. Encourage participants to set a goal representing something that needs attention or seizes an opportunity within their responsibility areas.

Be sure you can readily and credibly track and report progress. People need to know how they're doing vs. goals.

Have confidence in your performance period. In rapidly changing environments, semi-annual or quarterly goals may both provide greater flexibility and limit risk to both company and participants.

Reward results, not process. You want to reward sales, not percent of on-time sales reports; decreasing receivables days outstanding, not number of calls made. Following stated policies and procedures are expected as part of the job.

These helpful hints can go a long way toward creating the participant excitement that leads to outstanding performance and your feeling delighted to share the rewards with those who made it happen.

Spring 2002 - Volume 12, Number 2