Reader Question: Taming the Incentive Beast

Reader Question:  "With over 300 incentive plans in place, administration has become a major undertaking.  What can be done to tame this beast?"

Compensation Force Response: 

A two-pronged response comes to mind. 

First of all, should the organization be managing 300 separate incentive plans?  Without knowing much about the organization, its size and nature, and the objectives and contexts of all the plans, its difficult to tell if this is an appropriate number.  But its a large enough number -- and the administrative requirements associated with it steep enough -- that it is a question worth asking.

A tool and process that I have found to be helpful in addressing this question at client organizations is something that I call a reward plan matrix.  Essentially, it is a table I complete in inventorying and assessing the different plans that an organization has in place.  My version has seven columns across the top, and I complete a row for every plan that I discover (typically in Excel).  My columns are:

• Plan name
• Plan purpose or objective (in a few words, what it should accomplish)
• Number of employees eligible
• Number of employees who received an award in the most recent plan period
• Median award amount
• Total award payout dollars
• How well the plan appears to be meeting its stated purpose or objective (a brief statement, sometimes a letter grade)

Obviously this is an exercise that takes a bit of time if you are looking at a couple of hundred plans; however, I have found it to be invaluable in helping an organization get its arms (and head) around what it is doing with incentives and whether there appears to be a solid return on investment for all the incentive dollars being spent.  Additional benefits of taking this inventory include:

• Determining exactly how many plans are in place (the last time I did this, the client believed there were about 40 plans but we discovered 120).
• Discovering where there may be plans operating at cross-purposes (happens more than you'd think).
• Clarifying the total dollars that the organization is spending on incentive compensation overall (I have found this number to be an effective top management attention-grabber).

I realize that in many organizations, various divisions and departments are encouraged to design and manage their own incentive plans as part of an effort to promote an entrepreneurial esprit among the ranks.  I appreciate the value of this; however, allowing this much flexibility also creates huge opportunity for misalignment, double-dipping and a general loss of fiscal control.  For this reason, I am an advocate of getting a grip on the incentive beast in this manner!

The second prong of my response centers on plan administration.  Let's assume that you have discovered (or perhaps already know) that, in fact, the current 300+ is exactly the right number and configuration of incentive plans for your organization.  The only remaining question is how to administer them with better control and efficiency.

A number of software/system solutions for incentive plan management have come on the market in recent years.  Unfortunately, I do not have sufficient experience with any one solution to provide a solid recommendation here.  Googling on "incentive plan management software" or "incentive plan management systems" produces a number of potential vendors for consideration.  In addition, the vendor page for incentive plan management at WorldatWork advertises a couple of firms (these come without endorsement or guarantee of any kind from me, this blog or WorldatWork), including Nuvosoft (www.nuvosoft.com) and Strategix Performance (www.strategixperformance.com).

Thanks for the question.  Good luck in taming the beast!

Comments

[Julien Dionne]

This is a shameless plug for my own blog, but I think readers with this question may find some information they are looking for there, where I try to focus technical aspects of incentive compensation and sales performance management. The address is: compensationexpert.blogspot.com