Feature Article - May/June 2010

Measure for Measure

Maximize Value Form Your Incentive Program

By Rick Dandes

Advice for Beginners

All of our experts agreed that setting up an incentive program requires considerable forethought and good design.

Proper program design is absolutely essential, said Hanson, of Catalyst Performance Group. Smart program objectives ensure that you know what to measure. In fact, in many cases, you can forecast results, measure them intermittently, and adjust the program midstream if necessary, he said. Clear program objectives and proper rule structures guarantee that there will be as few unintended consequences as possible.

Kallery, of Maritz, added her advice: Gain agreement with key stakeholders and decision makers on assumptions (market, company, industry) and target growth and set reasonable targets; use past historical performance where available to construct possible scenarios; know profitability so you can calculate ROI; and set your budget based on targets and calculate target ROI upfront.

An existing program that is not being used correctly is fairly ineffective and very costly to implement if management, supervisors and even employees are confused. There also are issues of communication and promotion to consider. A poor design inevitably will lead to poor results.

Finally, rather than referring to ROI, Stotz and his colleagues at IRF generally prefer to use the term "return of value" (ROV), which records not only a financial impact, but also employee engagement, morale and new customers signing up. Sometimes just getting new people to try your product is reason enough to have an incentive and recognition process.

Smith of O.C. Tanner added that "ROI is not just about sales commissions or gold watches. Nor is it a simple feel-good intervention. It's about defining broader business goals, drawing up strategies to get there and aligning them with each individual in your organization. What is it that each department needs to do, and how can each individual contribute to that success?"

Every incentive program should revolve around the central idea of giving employees the tools and knowledge required for them to contribute to an organization's success. It's only through focusing and harnessing employee efforts that a company can hope to excel, accomplish its goals and achieve a good return on investment.