The Gift of a Bonus

March 30, 2014

The year end results are being tabulated, across the organization employees and managers will be turning their thoughts to what they can expect from their annual incentive payment.

Will this time be the same as prior years; the same blunders and oversights, retroactive objectives, inflated accomplishments and behavioral shortcomings diminished or overlooked.

The process has huge potential for flaws with essentially the foxes managing the chicken coop. 

Pay for performance is difficult to manage, perfect in theory but tough in the real world with senior managers squarely in the hot seat. Gaming results to ensure incentive awards aren't reduced and watering down the impact of performance with arguments of competitiveness and entitlement, based on perceived challenges outside the control of them or their subordinates. 

Studies have shown that particularly in the US entitlement mentality has reduced but it continues to thrive in organizations where rewards are viewed as payment for time served and not for effort and results, even where the objectives of the incentive plan might state otherwise.

Persuading leaders in these organizations that performance should provide rewards and that tenure is not a compensable factor is a major task. Incentive payments should not be automatic or thought of as delayed compensation.  

The same standards are often not applied universally; lower level employees are not granted the same flexibility and are mostly expected to earn their rewards.

We now have an opportunity to change these dynamics for the upcoming incentive cycle. To make your plans more effective, generate more ROI and begin the cultural transformation to a truly performance driven environment consider the following:  

  • Performance appraisal should not be an activity list, but a focused statement of achievement against quantifiable objectives. Pay for results not activity
  • Let the assessment determine the rating, not the other way around - "how do I fill out this form to give a 4 rating"?
  • Ensure that the assessment language corresponds to the performance rating - tell it how it is
  • Assessments should be in writing and completed before an incentive payment is made - no form, no pay, no procrastination
  • Establish objectives early not after the start of the performance period
  • Support objectives with numeric targets that ideally cascade from the strategic plan
  • Be consistent throughout the organization - apply the same standards of assessment and objective setting from the top to the bottom of your organization

You'll need more than a list like the one above to change the behavior of years. Plan on taking time to educate your management team about the ineffective use of scarce compensation dollars before the cycle restarts.  They are at the heart of the transformation. Tackle the push backs head on - explain that "on target" performance and payment of a target incentive maintains the company's desired competitive positioning and that time served and effort expended are not prerequisites for receiving an incentive payment.

For more thoughts on incentives and managing performance check out these blogs from last year "The Annual Cash Award: Bonus or Incentive" and "Performance Management".

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