The research conducted by the Consortium for Alternative Reward Strategies (CARS), probably the most comprehensive ever on group incentive plans, seems to be one of the best kept secrets in the rewards profession. I thought it a good idea to provide some information here on the research and some of its most important findings.
CARS was formed in 1990 by Jerry McAdams (former rewards practice leader at Watson Wyatt, where I spent more than a decade of my consulting career, and author of a few of my favorite rewards books; The Reward Plan Advantage and Rewarding Teams) and Elizabeth Hawk, kicking off more than a decade of extensive research. The first three CARS studies (CARS I, 1990-1993; CARS II, 1993-1995; and CARS III, 1995-1996) used a survey approach to examine the effectiveness of a total of 750 group incentive plans.
Some findings from the first three CARS studies (which covered a total of 1.3 million employees) include the following:
- Plans are installed to improve business performance through people, rather than to "attract and retain" employees.
- Payouts are modest, with a median of about 3% of base pay.
- Plans reporting more intensive communications, feedback and involvement also report lower payouts. An employee treated as a valued asset and involved in the process of performance improvement does not require as much direct financial reward as one who is not.
- At median, the organizations studied gained $2.34 (in performance improvements) for every dollar they spent on incentive payouts; thus a close approximation of net plan ROI is 134%.
- Plans are more successful if they have management support at all levels - including first line supervisors.
- Plans are more successful when they are regularly reassessed to stay current with business strategy.
CARS IV, which was kicked off in 1997, took a more focused approach, using in-depth case studies of eleven group incentive plans in four different organizations to developer a richer understanding of what makes plans effective.
More on CARS, specifically the important lessons gleaned from CARS IV, in tomorrow's post.