Incentive scheme nightmares
September 30, 2008
Having recently been involved in introducing a variety of different bonus/commission/incentive schemes, I’ve experienced the difficulties organisations face in putting these sorts of schemes with the aim of encouraging increased productivity, commitment and results, whilst making the process equitable and inclusive for all staff.
The first issue I have faced is that, working for a heavily sales based business, all bonus and incentive schemes are based on money brought in – i.e. as a percentage of a ‘deal’. This is good because the bonus is based on a tangible measure – a number, but it does mean that a scheme brought in across a company will only benefit those who have the opportunity to earn, i.e. have contact with customers in order to increase orders or ‘up-sell’, which means more ‘back-office’ or production staff may have a big contribution to the ‘deal’, for example by making suggestions as to what could be offered, but will get no recognition and therefore no bonus. It soon becomes apparent that one incentive scheme size does not fit all.
So the next question is, do you just have an incentive or bonus scheme for those who have the opportunity to bring in the money on which they can be measured and paid, or do you develop alternative schemes for the ‘knowledge workers’, and if so, how do you measure outputs and what do you allocate as a payment? A percentage of a deal is transparent and straightforward, but what is an appropriate payment for increasing performance in an area that is apparently un-measurable? One answer is to avoid incentives altogether in these circumstances, make it clear that a flat basic is the remuneration for the job carried out, and find other non-financial ways to motivate and drive employees, all of which should take place in addition to an incentive scheme anyway.
An obvious issue arising from bonus/incentive schemes is the damage they can do to teamwork, with individualised schemes sometimes leading to underhand and unhelpful behaviour from staff who are looking to increase their wages, and will do so at the expense of other staff and often the customer. There may be arguments over who is due to be paid for a certain ‘deal’ when more than one person has been involved in making it happen, and this is something that just has to be handled case by case as it arises. Many companies allocate team bonuses to avoid these problems and encourage a stronger team ethic, but of course this will bring different issues when one member of staff perceives that another hasn’t pulled their weight in contributing to the team bonus.
These issues will never be eradicated completely, but with careful management problems can often be kept to a minimum. The main thing, as usual, is effective communication on a regular basis. This might seem very time consuming and often frustrating but it must be remembered that money is a very emotive subject and the last thing any manager wants is staff under-performing because of the way they feel about fairness within the team, especially when it might be something that can be sorted out very easily and quickly with a simple conversation. If a member of staff doesn’t think the scheme is fair, ask for an explanation why and a suggestion for how it could be made more equitable. Also, when introducing a scheme, make it clear that the way it works is not set in stone and can be changed if either employees or management don’t think it is fulfilling the purpose intended. Having struggled through quite a few really frustrating issues recently, I personally would advise any company to think really carefully before introducing an incentive scheme – is there not another way that you can increase productivity and performance without making it money-related?
I would love to hear from anyone who works with an incentive or performance related bonus scheme, especially if you have experienced any of the above problems (or any others) and managed to overcome them.
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