In a recent article in Harvard Business Review, Amy Gallo discusses “How to Navigate Bonus Season.” The article presents a good recap of many of the issues my clients often discuss when designing and implementing bonus and incentive plans. Ms. Gallo hits a key point which is know what you are rewarding. Are you paying for people who simply show up while others may do the actual top performing work; or is the program balanced and fair? Regardless of the plan, employees will usually be driven to maximize their payout regardless of the impact on the organization. Said another way, plans must be carefully crafted so that employees can’t achieve a payout without the company achieving its goals or objectives.
Goal alignment is critical in incentive plan designs. The plans must be tested to see how employees could achieve their objectives without the organization improving its objectives. Once designed, the plan needs to be effectively communicated, documented with regular “performance” updates. The updates can be in the form of periodic progress payments or simply a report card on the results to date. Incentives provide an excellent means to drive behavior, but remember they are not the key in motivating employees.