Friday,
October 25, 2013
Cash Bonus Programs are a mainstay of many organization’s Total Rewards, but how
effective are they is driving the desired performance behavior and linking that
performance to organizational initiatives?
The answer can be found in their design, communication, execution,
maintenance, and measurement.
Design: “If I offer a large bonus, won’t my workers
will do an outstanding job.” Not
necessarily. Who is eligible, what
performance outcomes are desired, what performance behavior is eligible, how is
the calculation done, when are payment made, is the bonus integrated with base
pay, is a portion of the bonus “held back” or deferred, are bonus payments
included in calculations for benefits, are pay-outs scalable and variable based
on performance levels required and organizational needs?
Communication: I once worked for an organization where
eligibility for bonus programs was not communicated to the covered employees. How much, how often, when, and to whom bonus
program edibility is communicated is essential to driving the desired
performance behaviors and linking those behaviors to organizational
initiatives. Communications drives the “brand”
identity of a bonus program, its perceived organization support, as well as its
creditability.
Execution: It is never sufficient to design and
communicate a rewards program if its execution falls short of delivering on the
payouts effectively and efficiently. The
power of a rewards system loses its ability to drive the desired performance
behaviors if payouts are incorrect, delayed, lack creditability or presented in
an inappropriate manner. While an
organization may not want to publish dollar amounts on their corporate web
site, top reward earners should be celebrated nevertheless in some
internal/external fashion, e.g., “The Million Dollar Club, Top Sales of the
Year, Zero Lost Time Accidents for 10 Years”, … etc.
Maintenance: Organizations live in a dynamic and complex ecosystem
of competitors, regulations, and technology.
To be successful, every rewards system must be adaptable to the changing
internal and external environment in order to tie performance behavior to the
ever changing and new organizational initiatives. A bonus plan from 2000 is unlikely to drive
performance behavior or be linked to the organizational initiatives of
today. Left unattended, any bonus
program will become out-of-date and un-harmonized and may even drive the
organization to be less competitive, create recruitment and retention issues,
and raise sustainability questions with stakeholders.
Measurement:
It is a commonly held belief that failing
to measure is tantamount to failing to manage.
Ongoing outcome measurement of any bonus program is the foundation for
the determination of its effectiveness in changing behavior, i.e., increased profitable
sales, reduced costs, … etc. Without a
base-line measurement, it becomes impossible to know if the incentives of a
bonus program are too high, too low or just right. While financial measurement is generally the
realm of an organization’s finance function, it is vital that a program’s
owners (HR, Marketing, Sales, and Production) be in alignment with its Return on Investment.
