Effective incentive schemes reward achievement of results that positively impact the bottom line of the business i.e.

Improving revenue

Reducing expenses

Improving productivity

It is critical however, that the specified results can be achieved in a way that aligns with the organisation’s values and its ethical and moral obligations to its employees, its shareholders and the wider community. Too often, incentive schemes encourage unethical behaviour from employees or putting personal gain before the interests of others, the team or the organisation.

This is where incentives can be a really thorny issue! Some of the key issues that need to be addressed are:

Ensuring that the organisation profits from the incentive scheme

The incentive scheme should be designed to motivate performance that lifts the organisation results above and beyond what it would normally target e.g. the organisation may have determined that to pay an appropriate dividend to shareholders it needs to achieve a specific profit figure. Only pay 50% of the incentive for achieving this figure and budget for this payment in determining the target profit. Pay the other 50% only for above target performance.

Ensuring that employees don’t neglect the maintenance components of their job in favour of focussing on results that pay incentives. And ensuring that employees achieve their results in a way that aligns with the values and ethics of the business

The best way to address this issue is to make these things a pre requisite to payment of incentives i.e. unless an employee satisfies the criteria relating to maintenance components and values and ethics, they won’t receive an incentive payment, no matter what results they achieve.

Ensuring that internal relativities between employees at different levels, are maintained

Have the bonus calculated as a percentage of fixed remuneration, which hopefully will reflect internal relativities.

Ensuring that the incentives paid reflect the performance of the individual, their business unit and the organisation. And ensuring that individuals don’t put their own performance before that of the team or the organisation

Base the incentive first on the individual’s performance. For example the individual may be eligible for an incentive of 10% of salary provided they achieve specific results. However this individual incentive should be adjusted up or down relative to the performance of firstly their business unit, and secondly the organisation.

In this way the high performing individual will still be rewarded for his or her performance even if their business unit and/or the organisation performs poorly. Poor performing individuals will not be over rewarded for good business unit or organisational performance.

This arrangement should also ensure that the individual is keen to assist colleagues who are important to the achievement of business unit and organisation results, both of which impact on his or her incentive.

Development in Practice can help you with your incentive scheme.

Visit our website at: www.developmentinpractice.com.au