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Making incentives work for improved staff performance

20th Nov 2008
Content manager Sift Media
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HRzone
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HRzone

Motivating staff performance through incentives is a critical part of successful talent management and HR strategies. Do it well and employees are aligned with corporate objectives, benefiting the whole organisation. Mess it up, warns Bill Schuh, and you encourage behaviour that will damage your business.

We are currently seeing the fallout from incentives that rewarded short-term risk taking by bankers, which is one of the key causes of the current global financial crisis. So how do HR professionals in all sectors better use and control incentives to help achieve corporate objectives?

"By using bonuses to incentivise staff employees feel they have something tangible to aim for."

First, let's look at the benefits of incentive pay. It is a great motivator to ensure that staff go the extra mile and are focused on achieving their objectives. Clearly set out incentives mean that employees feel rewarded for achieving corporate goals, and bonuses are earned rather than distributed as seasonal perks.

However the 'carrot' approach of incentive schemes means they need to be well-thought out and clearly defined. Those incentives take into account long-term as well as short-term goals. In many other organisations and sectors outside financial services, employees have analysed incentive schemes and worked out the easiest way to earn their bonuses, which may not correspond with the behaviour desired by their employers.

While it is central to the sales function, incentives can be easily applied across the whole organisation. Customer-facing staff should be incentivised on the service they provide, measured through customer audits. Retention of customers or staff should be used to judge the bonuses of middle managers, while achieving manageable share price growth should set senior management rewards. In current economic circumstances, incentives have an even stronger role to play. By freezing salaries and using bonuses to incentivise staff who add value to the organisation, costs are kept under control and employees feel they have something tangible to aim for.

Formal framework

Applied and managed correctly incentives beneficially support a well-run business. So why are they not at the heart of more organisations and their HR policies? Primarily it is the difficulty of administering all but the most simple incentive schemes. Schemes need to be transparent, straightforward and achievable. But to measure their success they need to be underpinned by a formal framework and industry standard software. Essentially commissions and incentives need to be rigorously managed in the same way as any other fiscal cost in order to provide the visibility that HR managers need.

"Setting measurable, clear and reasonable objectives is the next stage in successful incentive management."

To gain the undoubted benefits of incentives, companies need to manage them professionally in a planned, strategic manner, rather than treating them as ad-hoc rewards applied without rhyme nor reason. There are three main stages to professionally applying incentives – automation, objective setting, and performance measurement.

Automation puts in place the 'single version of the truth' necessary to underpin incentive schemes. Too many organisations rely on low level spreadsheets when setting objectives and measuring performance. These are error-prone and not integrated with wider HR and business systems. In contrast, professional performance management tools provide the ability to bring together financial data with individual objectives to give information that can be relied upon by the whole organisation.

Setting measurable, clear and reasonable objectives is the next stage in successful incentive management. HR departments should look to create outline objectives that can be cascaded through the organisation, amended for different roles, but based on the same underlying vision. This ensures that the objectives of all employees are aligned with those of the organisation rather than simply the needs of their immediate manager. This process can be accelerated through the use of technology to roll out and gain sign-off on objectives, replacing slow and cumbersome manual processes.

Measuring performance

The final component in successful incentive management is evaluating performance against objectives. Through regular, scheduled reviews employees should be able to see and measure performance against goals. This way, employees are motivated to achieve objectives and are always aware of their progress. Making this information available either via self-service systems or regular updates from HR removes any need for 'shadow accounting' where staff keep private notes on progress. Instead, the time can be freed up for selling or other assigned business activities. Obviously once objectives have been met, the process begins all over again with new objectives set and disseminated to staff.

"Managed well, incentives will increase employee performance, align staff with corporate objectives and contribute to the bottom line."

Outside the incentive cycle, implementing performance management systems provides key benefits in terms of visibility and flexibility. Management has the information necessary to run the business and the ability to change course by tweaking incentive plans to meet evolving business conditions.

Professionalising incentive management not only benefits an organisation generally but also helps HR to show its strategic importance. By providing the link between organisational objectives and employee performance, it contributes to overall business success and delivers the visibility and control that companies need to flourish.

Incentives and rewards are nothing new in the business world. However, changing economic conditions and the ability to control incentives on an organisation-wide basis are now making them central to successful businesses across all sectors. Managed well, incentives will increase employee performance, align staff with corporate objectives and contribute to the bottom line, benefiting everyone.

Bill Schuh is VP for Europe at Callidus Software.

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By JShenton
30th Nov 2008 12:35

I have watched many incentive programs over the years and most if not all led to an improvement in recorded figures in the short term, but added very little to the performance of a business in real terms. I even took part in an incentive that resulted in falsification of the figures which led to a sever loss for the company concerned. You only need to look at the governments figures to see how incentives have distorted the way things are achived and the resulting fall out over time.
There is also a natural assumption that employees are all motivated by the same thing - money. Once I found a wway of measuring motivation amongst my staff - I learned fairly quickly that throwing money at over 60% of them was a total waste - try telling that to a sales manager - but it is true.
Find each persons motivation and you can get a much better return by managing individuals to improve business performance for the customer who after all is the one who pays the bills.

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By Peter A Hunter
21st Nov 2008 04:25

I have never seen an incentive or pay scheme that had anything except a destructive effect on performance.
Whatever was driving performance in the past goes straight out of the window when an incentive scheme is introduced.
The workforce become entirely focussed on achieving their bonus to the utter disregard of all other considerations, customer satisfaction, quality etc.
The worst thing is that although incentive schemes are designed to increase performance by offering the incentive, in most cases the workforce can figure out how to achieve their bonus without changing their behaviour one jot.

The only way to change performance is to change the way that the workforce feel about what they do and in most cases the person who has the ability to do that is the manager.
Unfortunately most managers do not understand this and fewer realise that it is their behaviour that is preventing their workforce from performing.
One example of this is the pay and incentive schemes that managers implement.
They believe that by implementing these schemes they are having a positive impact on performance while in actual fact the effect is the exact opposite.

To create a sustained improvement we have to allow the workforce to care about what they do.
When that happens their performance becomes amazing and any suggestion that their performance is the result of an incentive scheme will be treated by them as an affront.

Peter
Breaking the Mould,
www.BreakingtheMould.co.uk

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By dw_smith
20th Nov 2008 19:19

It can't be easy for HR Zone to find the balance between encouraging articles which will add value to the business of human development and limiting blatant promotional and misleading 'as if' content. In this case not only is Bill Schuh promoting his software but he is underpinning that support either through ignorance of human motivation or deliberate distortion of the process of productivity - with absence,stress and bullying at work at endemic levels it is the notions of Schuh which 'mess up' the organisational performance. At a time when HR have a case to answer that they are ineffective and should be able to improve productivity to levels far in excess of incentivisation (bribery) schemes if they could keep people at work through creating 'human' climates and leave the Pavlov ideas about performance to the animals

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