My Bet is on Variable Pay as the Top Reward (and Partnership?) Strategy for 2009

One of the advantages of age (shout out to my fellow boomers) is that you've been around long enough to notice what happens in your profession during upswings and downswings in the economy.  In my experience (and I've also begun doing a little research on this over the past several years), interest in variable pay (incentive compensation) tends to surge when the economy goes south.

While not every organization pulls off this move in a smart way (oh the stories we could tell), this trend makes sense to me on a lot of levels.  Despite what Alfie Kohn says, I see incentives, when well-designed and well-implemented, as a form of partnership between employer and employee. If ever there was a time when all oars needed to be pulling in the same direction, it has to be now - so using incentives as a means of strengthening partnership seems like an idea whose time has more than arrived.

And when approached and executed in the right way, I see this partnership following a charter something like what I have scripted out below.

To be successful (or survive or avoid the need for drastic cost cutting measures or whatever) in 2009, we as an organization need to focus on the following one/two/three things...

<Insert one/two/three things>

... and we will measure them in this way way, with the following targets...

<Insert metrics and target performance levels>

We (leadership) will be talking to you at least monthly about how we are doing in each of these areas and we will be asking and answering questions about the specific actions and steps necessary to move the needle on each of these measures.  Your individual Department/Functional managers will also be meeting with you regularly for similar discussion more specific to your area of work. 

We believe that each and every one of you can have an impact through the work that you do here.  Obviously, work in some areas may lend itself more to a focus on a particular one of these measures than on others.  Your individual Department/Functional managers will talk with you about how you should focus your efforts and work - each and every day - in order to help us accomplish these things.

If we get there, if we reach the target(s) shown here (or better) on any or all of these measures, we are prepared to share that gain with you in the form of a cash award.  Here is the award schedule ... or ... your direct supervisor will meet with you before the end of this week to provide details on your specific award opportunities and to answer any questions.

We are confident (or optimistic) that if we all pull together in the coming months, we can accomplish what is necessary.  Please don't hesitate to contact me or any other member of the leadership team with your questions or comments.

Is your incentive plan positioned to maximize the partnership between your organization and its employees in the tough months ahead? 

And if not, why not?

Image: Creative Commons Photo "Head of the Charles Regatta 2008" by Paul Keleher

Comments

[Frank Roche]

Ann, I've been wondering if we'd see the resurgence of MBOs. I lived through about every comp approach known, and MBOs, when done well, seemed to work in down economies. Interesting ideas here...we're seeing a lot more focus on PFP and STI comm from our clients. It's a tough year...and a tough one ahead. It'll be interesting to see it play out. (May we live in interesting times.)

[Ann Bares]

Frank:

An MBO resurgence in a down economy would make sense to me. I find it particularly heartening to hear that your clients are seeking comm assistance for PFP and STI - I have always believed (and preached, to anyone who would listen ...) that strong communication is at least as important as (and in some cases more important than) plan design.

It will indeed be an interesting year. Thanks for sharing your thoughts and observations!

[martin]

i agree with you ann. and i think in 2009, for HR, the toughest issue would be how to evaluate and redesign performance management system to drive up company's performance and measure employee's contribution in this tough period. and this may include PM for HR themselves as well.

[Wally Bock]

Thoughtful post, Ann. I like the structure you outline, but I think two other things are important, for the structure to work. First, top leadership has to lead by example and be transparent about compensation. Second, the hard work of day-to-day supervision has to be done well.

[E James (Jim) Brennan]

Ah, yes... the good old cascade approach. Always effective when properly done, via KISS. Settles the worried, keeps the eye on the prize, what's measured gets done, high-visibility, prompt feedback, corrective adjustments, etc.

[Derek Irvine]

Insightful post, Ann. I agree the need is great to get all employees focused on achieving the company the goals and I like your script. It is critical to clearly and concisely communicate those goals to employees as you indicate, including targets and metrics for success.

However, I disagree a cash payout once targets are achieved as a whole is the best reward approach. As you say in your script, every employee's effort impacts achievement of those individual goals. Similarly, every employee needs recognition for their efforts and validation that their work is appreciated — now more than ever.

If those individual recognitions are tied to a company value demonstrated or strategic goal achieved (or contributed to), then employees begin to see how their individual efforts contribute to company success. This is by far the most positive and effective way of encouraging repetition of precisely those actions company leaders need from every employee to succeed in this recession.

Strategic recognition programs specifically can also chart those recognitions and reasons given to show which groups or individuals are contributing where and which areas may need more targeted intervention for the company to achieve the goals.

I blog extensively about recognition in a recession here:
http://globoforce.blogspot.com/search/label/recognition%20in%20an%20ailing%20economy

[Ann Bares]

Wow - what a great set of comments. Thanks, all, for weighing in on this!

Martin: I agree, performance management is a key element of getting all oars pulling in the same direction.

Wally: Absolutely true - particularly the pay transparency thing. The only way the scenario I outlined would work is with a completely transparent plan - none of this discretionary "let's-figure-out-at-year-end-what-we-feel-like-paying-for-these-results" business. And effective day-to-day supervision is the glue that holds the whole thing together.

Jim: Yes the cascade approach. So simple in theory, yet so inexplicably hard to actually pull off, no?

Derek: Cash and recognition are always good complements - the key is melding them together in a way that maximizes what each can accomplish. Thanks for the link to your blog and the post on recognition in a recession.

[Michael Haberman, SPHR]

Ann:
Many are fans of incentive pay, and as you noted now is the time to pull together. One problem with a strick goal approach however is behavior. The same reason MBO needed to develop BARS. Focusing on the goal and not controlling the behavior used to achieve the goal gets us in trouble time after time, as we have seen with numerous companies. Any suggestions on how companies deal with that aspect of incentive pay? People will cheat.