The second in a two-part post on how to get more "bang" for your incentive/bonus "bucks". When considering the move to a more structured bonus plan with up-front mechanics (as I advocated in Part 1), there are a number of strategies for increasing your odds of success:
Clarify it. Be very clear on what you want the bonus plan to do for you and how you will measure whether it gets there or not. Only then will you be in a position to gauge its success later on.
Challenge it. The most effective bonus plans are almost never developed by one or two individuals working in a vacuum, no matter how smart these people may be. Get the initial design ideas out in front of a bigger audience for input and reaction. One of the biggest potential pitfalls in bonus plan design is something that we compensation professionals call “the law of unintended consequences” (or "I never dreamed that when I implemented a plan to reward people for focusing on productivity gains that our quality would suffer..."). The best preventative strategy for this is to involve as many different perspectives as possible during the design process.
Cost it. Calculate your anticipated “return on payout”. Don’t wait until year-end to discover how much you will be spending on bonuses; examine this early on as part of your design effort -- before you communicate anything to employees. Make sure there is an appropriate balance, under different potential performance scenarios, between the dollars paid to employees and the value received by the company.
Communicate it. Get the word out, preferably in face-to-face meetings. Employees need to understand not only how the plan works, but also what they can do every day to improve the performance measures on which their bonus depends. Then, keep them abreast of how they are doing with at least monthly updates.
Change it. That’s right. Or at least evaluate it every year for its continued fit to your company’s reality and strategic objectives. As your business priorities and opportunities change, so, potentially, should your bonus plan. Otherwise, you are using this tool to focus people on yesterday's imperatives.