Can Your Employees Make a Difference? What Does Your Incentive Plan Say?

I am floored by how many times, during the design of an employee incentive plan, management trots out the assumption (as though it were an indisputable truth) that individual employees are unable to make a meaningful contribution to overall organization - or business unit - performance measures.  That there can be no possible line of sight between the work of rank and file employees and overall organizational metrics like revenues or net income.  And so, it logically follows, the only way to implement incentives for most of an organization's population is to focus on individual performance measures, perhaps with a token (and low-weighted) nod to something at the organizational level.

When I push back on this tendency, I often get a response along the lines of: "Well, these people can't make a difference in the organization's bottom line."

Really?  Then why are they there?

An incentive plan provides a terrific opportunity to focus employees - all of them - on doing the things in their respective jobs that help the organization successfully execute its most important objectives.  The management teams who have made this connection happen are those who are committed to ongoing conversations between each employee and his/her direct manager about what must happen, each day, for that employee to help impact the most important measures of organizational success.

Right down to the plant floor.   Like talking to assemblers about how they contribute to net income by reducing scrap.  Or talking to warehouse workers about how they contribute to overall productivity by reducing errors in the order picking process.  And so on.

Not long ago I was helping a mid-sized company design a new annual incentive plan for the top 6 or 7 executives reporting directly to the CEO.  The officer leading the effort suggested that we tie 50% of each executive's award to their individual performance goals, because "they can't, individually, really have much of an impact on overall company performance."

I'm sorry, but what?  The top executives in the company can't impact overall company performance?

The issue here is obviously deeper and wider than incentive plan design, but the plan design process has a tendency to bring it forward and lay it into our laps.  How can an organization hope to achieve its overall goals when it is enveloped in the sense that nobody working there can really make a difference?

Talk about your self-fulfilling prophecy.  What do you think?

Comments

[almostgotit]

Oh, I know I *do* invoke Peter Drucker too much. But he was a great fan of having workers tell their bosses about what they do, instead of visa versa. Really doesn't take a huge stretch of imagination, does it, to see that the people actually DOING the work, themselves, for 40+ hours a week, will know more about that work than ANYONE ELSE IN THE COMPANY? And will, moreover, also have the most POWER over how well that work is or isn't done??

I was meeting with an organization about their webpage last week, and had a very similar moment of frustration. A website also tells a great deal about an organization, starting with the website's sitemap. I can't tell you how many times an organization has been unable to understand why I can't just design their a sitemap for them, or what to feature most prominently on the site, when they can't even tell me how their organizaion is structured or what their own priorities are.

I must confess I have more than once become the tail that wagged the dog. I wish I could figure out how to put *that* on my resume?!

[Ann Bares]

Almost:

Never apologize to me for invoking Peter Drucker!

I imagine that this conversation comes up in a lot of functional areas where outsiders are attempting to serve the organization that can't say, for sure, what its strategy and priorities are.

I like the concept of the tail wagging the dog. Perhaps I'll put that on my resume, too. Better than "bossy and irritating independent consultant".

Thanks!

[Frank Roche]

I spent some good days communicating EVA in organizations that was tied to the incentive plan. The great thing about talking about NOPAT is that everyone is responsible. Sure, only the CFO determines the weighted average cost of capital, but all the rest, P&L, have to do with individual employees.

I'm afraid that the "employees can't affect the bottom line" is a bit of the Baked Ham Strategy. Why do you cut the ends off the ham? I dunno, it's because my grandmother did it. When Grandma gets asks, she says it's because she didn't have a big enough pan.

I love what you wrote: Really? Then why are they there? Super question to a silly assertion by some managers.

[Wally Bock]

Great post, Ann. Brava!!

If the front line workers and the bosses don't have an impact on the bottom line, who does?

[Ann Bares]

Frank:

I love that baked ham story - it fits so many HR and talent management scenarios. Nothing like stories featuring a grandmother's rock solid wisdom to call out our own silliness.

Wally:

My question exactly!

Thanks - both - for your thoughts and feedback. It's not just me, then!

[Kate]

I can't believe how simple minded that sounds of them- that top level executives can't individually impact the performance of the company. Then why would their teams below them be any more aligned to the business than them.

I work for a company called RedBalloonDays. We match incentives to personal career development and organisational strategy where i work.

It's so important for your people to be able to have a 'wishlist' or the things they would love to do one day.

In answer to your first question- Employees who feel recognised and appreciated for their work are more likely to be engaged. in Australia 1/3 people leave when they don't feel recognised. Disengaged employees cost Aussie businesses $32.7billion per annum (which is big for us over here!)

To see how we go about lining up incentives with employee productivity and engagement have a look at this FREE 'Little Red Book of Answers' follow this link http://corporate.redballoondays.com.au/go/knowledge-bank/book-of-answers

[Wally Bock]

Congratulations! This post was selected as one of the five best business blog posts of the week in my Three Star Leadership Midweek Review of the Business Blogs.

http://blog.threestarleadership.com/2008/08/27/82708-a-midweek-look-at-the-business-blogs.aspx

Wally Bock

[Ann Bares]

Kate:

Sounds like U.S. and Australian workers have much in common! If we don't believe or recognize the difference they make, how can we expect them to be engaged?

Thanks for your comments!

Wally:

Cool! Thank you!