Their disapproval disappointed the corporate headquarters compensation experts tasked with the duty to faithfully but delicately comply with the incentive program guidelines supplied by the division's senior management. Since the instructions from corporate executives included warnings to stay away from the divisional unit, follow their commands and do NOT by any means annoy them with a "visit by corporate staff," the HQ pay experts were not particularly surprised. They knew that a hands-off remote long-distance design project with no direct input from the affected employees was fraught with hazards, but there were extenuating circumstances.
Namely, this particular division of the top-50 multinational conglomerate was a particularly highly valued cash cow. With a steady 52% return on investment from this unit (yes, fifty-two percent ROI!), corporate execs were not about to allow any misstep that would upset the divisional sales managers. The extraordinary profit contribution from this company funded quite a few other struggling divisions popular with key executives but not very profitable (if at all). As a hint, the ubiquitous plastic kitchen product made by this enterprise "burped" and was sold via a revolutionary completely innovative direct marketing technique. Yeah, THAT company ... back in the day when it was a tiny unit of a giant corporation.
The vehement rejection of the new sales incentive program stunned all the officers on the dais. They had anticipated cheers rather than jeers from their audience. The unit CEO announcing the principles of the new plan interrupted the shouting to ask why they were so upset. After all, he explained, this program was designed by the best corporate HQ comp experts, using the sales projections submitted by the managers themselves. "That's exactly the problem!" yelled one of them. Protests flew from the audience.
Those numbers are bogus! It's a mandatory field for completion in our year-end sales reports. The projections aren't real. We just make them up. They are pure guesses. No one ever held us accountable for them before. This is unfair!
The CEO's jaw clenched. The CFO turned red. The VP of Manufacturing looked like he was having a heart attack as the cause of his continual production scheduling issues became clear. The corporate HQ authors of the offending plan slunk out a back door. While it is relatively easy to forgive someone for making a mistake, it is very difficult to forgive someone for being right. Accordingly, the program designers were severely punished for doing exactly what they were ordered to do by and for the division.
The old sales incentive plan was grandfathered for a while and the storm blew over eventually. Of course, the usual jokes about help from corporate got quite a bit more vicious for a few years afterwards. But that's a different story.
Imagine virtually all the veteran compensation people here (as well as many of the relative novices) have also had similar experiences. One lesson from the incident is that incentive plans DO have an effect on employee actions. They rarely inspire creativity but usually focus greater effort towards specific outcomes. Sometimes they inspire workers to stretch themselves to new higher levels. Sometimes they are "gamed." Sometimes they expose weaknesses in data used to make important management decisions.
Since we are dealing with human behavior here, anything can happen. But the Law of Unintended Consequences always applies.
E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR jobs and consulting in every industry throughout North America, he wss Senior Associate of pay survey software publisher ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases and also serves on the Advisory Board of the Compensation and Benefits Review.
Image “I Made A Big Mistake” by stockimages courtesy of freedigitalphotos.net