August Benefits Installment by Jim Moniz
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Vision, potential, communication and motivation – are the key elements to an effective company’s incentive program. But in the absence of well-defined indicators and a “best practices” framework, even the most comprehensive program can fall short.
The foundation of an incentive program is basic; it must project the potential that can be realized by the company if its purpose if fulfilled. It must also identify employees who are in a position to impact those outcomes. Moreover, it should standardize its benefits/rewards and determine how much of an increased shareholder value will be allocated to employees and how its value will be measured.
Indicators, sometimes referred to as measures and metrics in a company’s reward strategies, are pivotal to a well-oiled incentive program.
The role of indicators is straightforward – they should seek to improve performance, influence behavior and create focus. This is accomplished through communication and reinforcement to encourage a company wide culture of employee ownership mentality.
Indicators should not be confused with motivators. Motivation is an internal element, something that is encouraged by aligning employees with roles and tasks that are consistent with their abilities. This will encourage them to shine. Motivation is additionally stimulated by a mutual vision between the company and employees.
That said, if indicators are not properly nor thoroughly defined, employee motivation can collapse under an incentive program – this can happen when workforce members see a disconnection between their role in the company and how rewards are earned. This is why a “best practices” framework – a Profit Based Allocation – is a vital component to a company’s incentive program.
A “best practices” framework should address a number of issues, including how company growth is defined; the baseline upon which contributions to the profit pool will be based; payment threshold; percentage to be shared; an allocation formula; and a definition of the expected individual’s performance.
There is nothing “cookie cutter” about an effective incentive program– what may work for one company could be way off the mark for another. The most expedient way to achieve the ideal program for your company is to be fully aware of best practice standards and frameworks, and then work within that structure to customize indicators and measures specific to your organization.
Incentive programs that work best are based on a company’s culture, business model and goals. Communication and reinforcement of results on an ongoing basis is critical. A C- incentive program will outperform an A+ program without ongoing communication and reinforcement. Companies should match their incentive program to those crucial components and then stay the course.
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About our Benefits Installment Author:
James E. (Jim) Moniz, CEO of Northeast VisionLink, a Massachusetts firm that specializes in structuring executive compensation. James E. Moniz is a national speaker on the topic of wealth management and on executive compensation.