Implementing Incentive Pay - Dennis...

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Implementing Incentive PayImplementing Incentive Pay

Getting What You Pay ForGetting What You Pay For

Dennis AckleyDennis Ackley

Copyright 1999 Dennis AckleyCopyright 1999 Dennis Ackley

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My question to youMy question to you……

Why isnWhy isn’’t all pay consideredt all pay consideredincentive pay?incentive pay?

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What is pay?What is pay?

Much more has been written about Much more has been written about pay and incentivespay and incentives

than is actually known.than is actually known.

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What is Pay?What is Pay?

Maybe pay isMaybe pay is……

�� a motivatora motivator……but why donbut why don’’t all organizations t all organizations publicize the salary ranges for all jobs?publicize the salary ranges for all jobs?

�� a measure of a measure of ““job gravityjob gravity”…”…the amount it the amount it takes to attract and retain employeestakes to attract and retain employees

�� a measure of the companya measure of the company’’s commitment s commitment and loyalty to employeesand loyalty to employees

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�� one of Herzbergone of Herzberg’’s s ““hygiene factorshygiene factors”…”…it doesnit doesn’’t t make people happy, only helps prevent make people happy, only helps prevent unhappinessunhappiness

�� a reward for performancea reward for performance……but why donbut why don’’t all t all organizations communicate pay changes and organizations communicate pay changes and performance appraisal results at the same performance appraisal results at the same time? time?

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�� a measure of the supervisors appreciationa measure of the supervisors appreciation

�� a way to a way to ““keep scorekeep score”” with people doing the with people doing the same job at other organizationssame job at other organizations

�� a form of recognitiona form of recognition……but less important than but less important than the the ““chairmanchairman’’s award,s award,”” a special parking a special parking space, a holiday turkey, or a space, a holiday turkey, or a ““nice worknice work””compliment from the bosscompliment from the boss

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What is an incentive?What is an incentive?

““ItIt’’s impossible to create a processs impossible to create a process-- and and customercustomer--centered organization if people are centered organization if people are measured and rewarded in traditional ways. measured and rewarded in traditional ways. They must be paid for results. And not principally They must be paid for results. And not principally individual performance.individual performance.””

Michael HammerMichael Hammerauthor, author, ““Beyond ReengineeringBeyond Reengineering””

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““Reward systems fail to take into account Reward systems fail to take into account important factors like the drive for selfimportant factors like the drive for self--control.control.””

Martin FordMartin FordStanford psychologist andStanford psychologist andauthor, author, ““Motivating HumansMotivating Humans””

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““Getting people to chase money produces Getting people to chase money produces nothing except people chasing money.nothing except people chasing money.””

Phillip SlaterPhillip Slaterauthor, author, ““Wealth AddictionWealth Addiction””

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““When rewards focus on a task When rewards focus on a task ——people do people do whatwhat’’s necessary to get the reward. Yous necessary to get the reward. You’’re re better off providing unexpected recognition for better off providing unexpected recognition for accomplishments.accomplishments.””

Dr. Tom McDonaldDr. Tom McDonaldConsultantConsultant

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““Do this and youDo this and you’’ll get that ll get that —— it is not much it is not much different than different than ‘‘Do this or hereDo this or here’’s what yous what you’’ll get.ll get.’’Rewards, like punishment, are extremely Rewards, like punishment, are extremely effective at providing temporary compliance. effective at providing temporary compliance. They are strikingly ineffective at providing lasting They are strikingly ineffective at providing lasting change in attitudes or behaviors. The key is to change in attitudes or behaviors. The key is to get people to like their jobs.get people to like their jobs.””

AlfieAlfie KohnKohnauthor, author, ““The Trouble with Gold Stars,The Trouble with Gold Stars,Incentive Plans, AIncentive Plans, A’’s, Praise, and s, Praise, and Other BribesOther Bribes””

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What is incentive pay?What is incentive pay?

oror

What makes certain kindsWhat makes certain kindsof pay an incentive?of pay an incentive?

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Essential Elements of Incentive PayEssential Elements of Incentive Pay

The five CThe five C’’ss

1. 1. CommitmentCommitment

�� from senior managementfrom senior management

�� from team leadersfrom team leaders

……not the next not the next ““program of the momentprogram of the moment””

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2. 2. ClarityClarity�� clear understanding clear understanding —— if employees cannot if employees cannot

describe how it works, it isndescribe how it works, it isn’’t a real incentivet a real incentive�� clear alignment with what company says it must clear alignment with what company says it must

do to succeed (business plan)do to succeed (business plan)……not another not another ““say one thing say one thing —— do anotherdo another”” programprogram�� ““customer satisfaction is our most important customer satisfaction is our most important

goalgoal”” —— but pay is based on productivitybut pay is based on productivity�� ““team work is our futureteam work is our future”” —— but incentives are but incentives are

based on individual performancebased on individual performance

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3. 3. ConfidenceConfidence —— among employeesamong employees

�� belief they can hit the targetbelief they can hit the target

�� trust in managementtrust in management

�� intellectual respect (is management clueless?)intellectual respect (is management clueless?)

�� incentives for only one aspect of incentives for only one aspect of multifaceted work processmultifaceted work process

�� incentives used to lead rather than incentives used to lead rather than leadershipleadership

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4. 4. ControlControl —— among employeesamong employees

�� belief that what they can do will make a belief that what they can do will make a differencedifference

�� the actions required are in their the actions required are in their ““line of sightline of sight””

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5. 5. ChangeChange�� understanding that understanding that ““rere--aimableaimable targetstargets”” are are

essential essential —— because of changing customersbecause of changing customers’’expectations and competitorsexpectations and competitors’’ activitiesactivities

�� belief that success comes to companies belief that success comes to companies quickest to react quickest to react —— or anticipate or anticipate —— how to how to effectively deliver valued services and effectively deliver valued services and productsproducts

�� awareness that payouts must be reawareness that payouts must be re--earned earned ——not added to future base paynot added to future base pay

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Incentive Pay: Is it really?Incentive Pay: Is it really?

�� ManagementManagement--directed directed —— true incentives?true incentives?�� profit sharingprofit sharing�� stock optionsstock options�� annual merit payannual merit pay

�� EmployeeEmployee--influencedinfluenced�� results sharingresults sharing�� small group incentivessmall group incentives�� spot bonus for teams demonstrating company spot bonus for teams demonstrating company

valuesvalues�� TQM rewardsTQM rewards

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New Pay has many elements of incentive payNew Pay has many elements of incentive pay

�� The shift is onThe shift is on……

�� from JOBfrom JOB--BASEDBASED--PAYPAY……pay based on the pay based on the value of the jobvalue of the job

�� to PEOPLE PAYto PEOPLE PAY……pay based on the value pay based on the value you you —— or your team or your team —— provide customers provide customers and the organizationand the organization

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The highly defined duties and restrictions The highly defined duties and restrictions found in job descriptions are going away found in job descriptions are going away ——so are many so are many ““jobsjobs””TodayToday’’s focus is on:s focus is on:

……these donthese don’’t support t support ““just doing my job.just doing my job.””

The incentives in PEOPLE PAYThe incentives in PEOPLE PAY

�� flexibilityflexibility�� speedspeed�� teamsteams�� empowermentempowerment�� qualityquality

�� crosscross--trainingtraining�� rere--engineeringengineering�� costcost--cuttingcutting�� customer satisfactioncustomer satisfaction�� adding valueadding value

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The PEOPLE PAY approachesThe PEOPLE PAY approaches

�� team awards team awards —— for a group attaining its goalsfor a group attaining its goals�� skillskill--based based —— for specific skills you possessfor specific skills you possess�� jobjob--based based —— for tasks you can performfor tasks you can perform�� knowledgeknowledge--based based —— for what you knowfor what you know�� competencycompetency--based based —— for applying knowledgefor applying knowledge�� broadbroad--banding banding —— shift from internal (jobs, shift from internal (jobs,

titles, and ranges) to external (customers, titles, and ranges) to external (customers, value, and quality)value, and quality)

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How to implement aHow to implement a

successful broadsuccessful broad--basedbased

Incentive Pay programIncentive Pay program

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How to implement Incentive PayHow to implement Incentive Pay

�� Develop a clear statement of your overall pay Develop a clear statement of your overall pay approachapproach

�� how it supports organizationhow it supports organization’’s missions mission

�� get top managementget top management’’s support (or dons support (or don’’t t implement it)implement it)

�� Involve employees in implementing, operating, Involve employees in implementing, operating, communicating, and improving the approach communicating, and improving the approach (how else can it have employee commitment?)(how else can it have employee commitment?)

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�� Develop realistic expectations and objectivesDevelop realistic expectations and objectives

�� start simple start simple —— add sophistication lateradd sophistication later

�� find out what employees believe are find out what employees believe are valuable awardsvaluable awards

�� teach employees that perceptions are teach employees that perceptions are valuable measures valuable measures —— customer satisfaction customer satisfaction and stock market performance are largely and stock market performance are largely perceptionperception--based based

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�� Convince supervisors that incentive pay Convince supervisors that incentive pay communication is a key part of their jobcommunication is a key part of their job

�� provide communication tools (handouts, provide communication tools (handouts, desktop flipcharts, individual printouts, etc.)desktop flipcharts, individual printouts, etc.)

�� train them to explain the new incentive plantrain them to explain the new incentive plan–– and base salaryand base salary

�� measure supervisorsmeasure supervisors’’ communication communication effectivenesseffectiveness

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�� Conduct announcement meetings led by senior Conduct announcement meetings led by senior executive (in person or on tape) executive (in person or on tape) �� explain explain ““big picturebig picture””�� whatwhat’’s the challenge/problems the challenge/problem�� how new incentive addresses the challenge how new incentive addresses the challenge

and supports organization's missionand supports organization's mission�� how new incentive will benefit customers, how new incentive will benefit customers,

employees, and the organizationemployees, and the organization�� what role employees will playwhat role employees will play�� how incentive will be implemented, results how incentive will be implemented, results

measured, and awards mademeasured, and awards made

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�� Tell employees the company understands how Tell employees the company understands how important pay is important pay is —— put in print:put in print:

““It is a mistake to pay too little It is a mistake to pay too little —— good good people leave, morale goes down.people leave, morale goes down.””

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�� Provide training in how to meet targetsProvide training in how to meet targets�� field test with limited group (TQM step)field test with limited group (TQM step)�� implement revised approachimplement revised approach

Often overlooked message:Often overlooked message:““We want you to earn rewards!We want you to earn rewards!””““WeWe’’ll help youll help you……wewe’’ll teach youll teach you……wewe’’ll ll

keep you informedkeep you informed……when you win, so when you win, so does the Company.does the Company.””

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�� Issue frequent reportsIssue frequent reports�� Meet frequently to discuss successes and Meet frequently to discuss successes and

obstaclesobstacles�� Celebrate accomplishments Celebrate accomplishments —— team leaders team leaders

describe results and awardsdescribe results and awards�� Monitor the plan toMonitor the plan to

�� redefine success based on changing redefine success based on changing customer and business needscustomer and business needs

�� encourage team problemencourage team problem--solving activitiessolving activities

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The introduction ofThe introduction of

Incentive PayIncentive Pay

needs a needs a ““spark!spark!””

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WhatWhat’’s the s the ““sparkspark””

�� LeadershipLeadership(human desire to be on a successful team)(human desire to be on a successful team)

�� the the ““foreseerforeseer”” …… ““Follow me, I know how Follow me, I know how we can be more successfulwe can be more successful””

�� the the ““lookoutlookout”” …… ““ThereThere’’s a disaster coming s a disaster coming our way our way —— we must alter our coursewe must alter our course””

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�� The correct degree of embarrassmentThe correct degree of embarrassment(human desire to avoid negative situations)(human desire to avoid negative situations)

�� publish the customer satisfaction reportspublish the customer satisfaction reports

�� hand out the quality resultshand out the quality results

�� post the customer complaint letterspost the customer complaint letters

�� distribute a report on a customer who fires distribute a report on a customer who fires the companythe company

�� build team environment build team environment —— help each other help each other win togetherwin together

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�� The need for selfThe need for self--esteemesteem(human desire better known as (human desire better known as ““egoego’’))

�� send a clear, personalized explanation of send a clear, personalized explanation of ““whatwhat’’s in it for me?s in it for me?””

�� provide a forum for acknowledging provide a forum for acknowledging accomplishments and publicizing rewardsaccomplishments and publicizing rewards

�� grant visible and appreciated rewardsgrant visible and appreciated rewards

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Incentive PayIncentive Pay

ImplementationImplementation

ChecklistChecklist

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Implementation checklistImplementation checklist

��Lead with leadership Lead with leadership —— not communication not communication ——keep leaders highly visiblekeep leaders highly visible

��Keep communicating Keep communicating whywhy the company is the company is introducing the new approachintroducing the new approach

The Background/Business Case DilemmaThe Background/Business Case Dilemma

Some employees will label is as Some employees will label is as ““B.S.B.S.”” ButButwithout the without the ““whywhy””, they say, , they say, ““You never tell us You never tell us the reasonsthe reasons —— dondon’’t you think we care, or are t you think we care, or are smart enough to understand?smart enough to understand?””

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��Get personal Get personal —— answer answer ““whatwhat’’s in it for me?s in it for me?””

��Avoid using slogans, buttons, TAvoid using slogans, buttons, T--shirts or free shirts or free caps as part of the introductioncaps as part of the introduction

�� pay is too important for silly stuffpay is too important for silly stuff

�� wait to celebrate successwait to celebrate success

��DonDon’’t overlook the power of employee t overlook the power of employee recognition recognition —— often as important as cashoften as important as cash

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��DonDon’’t set arbitrary limits on communication t set arbitrary limits on communication ——““They wonThey won’’t read more than one page.t read more than one page.””�� limit complexity of planlimit complexity of plan�� increase motivation increase motivation —— essential to learningessential to learning�� provide all the education it takes to provide all the education it takes to

understand the planunderstand the plan��Summarize on one page:Summarize on one page:

�� key messageskey messages�� planplan’’s designs design�� benefit to employees, customers, companybenefit to employees, customers, company

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��Keep jargon out Keep jargon out —— call things what they arecall things what they are

�� not not ““gainsharinggainsharing”” if itif it’’s s ““riskrisk--sharingsharing””

�� not not ““midmid--pointpoint”” if itif it’’s market value or full job s market value or full job value (midvalue (mid--point point —— ““youyou’’re only halfwayre only halfway””))

�� not not ““broadbandingbroadbanding”” if itif it’’s job expansion or s job expansion or title reduction title reduction —— call it call it ““customercustomer--focused focused paypay”” or or ““peoplepeople--focused rangesfocused ranges””

��DonDon’’t GIVE employee awards t GIVE employee awards —— they EARN they EARN themthem

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��Avoid the word Avoid the word ““changechange”” —— talk about growth, talk about growth, progress, refocused objectives, pursuit of progress, refocused objectives, pursuit of customer satisfactioncustomer satisfaction

��Use line managers and others who are viewed Use line managers and others who are viewed as credible to help communicateas credible to help communicate

��DonDon’’t call the new approach a t call the new approach a ““programprogram”” ——fuels fuels ““program of the momentprogram of the moment”” cynicismcynicism

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��DonDon’’t communicate too much detail too soon t communicate too much detail too soon —— highlighthighlight�� development effortdevelopment effort�� backgroundbackground�� process for getting information to process for getting information to

employees (what will happen when)employees (what will happen when)�� assurance no related question will go assurance no related question will go

unansweredunanswered

��Explain Explain —— do not selldo not sell

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��DonDon’’t us a box as a graphic for a jobt us a box as a graphic for a job

J o bJ o b

BADBAD

BETTERBETTERAboveAboveFull ValueFull Value

BelowBelowFull ValueFull Value

SalarySalaryRangeRange

EVEN BETTEREVEN BETTER

CustomersCustomers

Full Job ValueFull Job Value

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��DonDon’’t flunk the employeest flunk the employees’’ perception test perception test

�� how can a major initiative be designed and how can a major initiative be designed and ready to go a few days after first ready to go a few days after first mentioned?mentioned?

�� how can two focus groups or a small how can two focus groups or a small sample of employees for a survey give sample of employees for a survey give reliable input?reliable input?

�� if itif it’’s important, meetings would be s important, meetings would be conducted conducted —— big boss would be therebig boss would be there

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��Work with a communication pro who asks: Work with a communication pro who asks: ““What do we want employees to know and be What do we want employees to know and be able to doable to do……What are the obstaclesWhat are the obstacles……How will How will we know when the messages got through?we know when the messages got through?””

��Treat employees with dignity Treat employees with dignity —— as team as team members or adult family members members or adult family members —— not as not as ““customerscustomers””

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��DonDon’’t leave the impression that different t leave the impression that different groups get different messages groups get different messages —— use the use the same slides and handouts same slides and handouts —— put key put key messages in writingmessages in writing

��DonDon’’t imply that employees must ask to get t imply that employees must ask to get answers answers —— no Q&A flyers, no no Q&A flyers, no ““800800”” numbers, numbers, no oneno one--onon--one Eone E--mailsmails

��Don't conduct mass meetings for sensitive Don't conduct mass meetings for sensitive issues issues —— like paylike pay

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Implementation checklistImplementation checklist—— employee involvement employee involvement ——

��DonDon’’t hide what employees say t hide what employees say —— if you if you involve employees in design teams, surveys, involve employees in design teams, surveys, focus groups, be sure to report back what they focus groups, be sure to report back what they say (or donsay (or don’’t involve them)t involve them)

��DonDon’’t ask about t ask about ““satisfactionsatisfaction”” —— are you are you ““satisfied with your pay?satisfied with your pay?”” Implies you intend Implies you intend to satisfy employees to satisfy employees —— cannot be done even cannot be done even with professional athleteswith professional athletes

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��DonDon’’t assume employees received messages t assume employees received messages you sent you sent —— ask them what you said (donask them what you said (don’’t ask t ask ““do you knowdo you know”” questions questions —— ask, ask, ““how does how does the new pay approach work?the new pay approach work?””))

Implementation checklistImplementation checklist—— followfollow--up and reinforcement up and reinforcement ——

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��Keep communicating after the introductionKeep communicating after the introduction�� reinforce messages reinforce messages —— whatwhat’’s in it for you, s in it for you,

the company, and customersthe company, and customers�� celebrate victoriescelebrate victories�� publicize people publicize people ““doing it rightdoing it right””�� provide feedback provide feedback —— soon and simplesoon and simple

–– message boards showing production factsmessage boards showing production facts–– kiosks providing statistical infokiosks providing statistical info–– interactive telephone offering infointeractive telephone offering info–– intranet intranet ““success pagesuccess page””

Implementation checklistImplementation checklist—— followfollow--up and reinforcement up and reinforcement ——

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SummarySummary

�� 5 Cs of incentive pay 5 Cs of incentive pay —— commitment, clarity, commitment, clarity, confidence, control, changeconfidence, control, change

�� Simplify plan design Simplify plan design —— dondon’’t shortt short--cut cut communicationcommunication

�� Do more Do more ““dodo”” —— less less ““saysay””�� Link philosophy and business objectivesLink philosophy and business objectives�� Avoid jargonAvoid jargon�� Emphasize faceEmphasize face--toto--face communication face communication ——

especially through supervisorsespecially through supervisors�� Answer Answer ““what is in it for me what is in it for me —— or my team?or my team?””�� Celebrate victories Celebrate victories —— share lessons of defeat as share lessons of defeat as

progress toward another victoryprogress toward another victory

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