Beyond the Cookie Cutter Approach: Customizing your Company’s Incentive Program

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.

The Trouble With HR

Today we present an article by guest Coaching Author, Wendy Reeves.

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As a former HR manager, and latterly in my employment as HR director, I know only too well the pressures and the difficult assignments that befall the corporate HR department.

The key function of good HR is to provide a service to the organisation and its staff. The workforce, from the top to the bottom, need to be treated as ‘the customer’, supporting and delivering to that customer as required. I have always believed in HR operating an ‘open door’ policy to anyone within the organisation. An accessible and visible HR department creates trust and confidence, and cohesion. Not always easy at the best of times, and in this current economic climate beleaguered HR personnel are beginning to suffer.

Cut backs and waves of redundancies are currently on businesses’ agendas, as they fight to survive the credit crunch. Head office functions and responsibilities such as marketing, are being removed and re-assigned to be delivered by line management, and effecting the change that these situations bring not only for those leaving, but also for those remaining - often requires HR input. And frequently when all that is done, it’s the turn of HR being the last to go. If your boss asks you for details of the redundancy process, be wary.

At my last employment the company was working towards floating on the stock market, and the share options awarded to me at the time of my directorship would turn in to ordinary shares, which I could cash in. It was at this stage that I made the decision to make some life changes as this windfall would support and help me move forward to a new chapter in my life. Part of the company’s preparation to float was to tidy up the management structure, which fell upon my department. Even though I was preparing my own exit some months ahead, it came as a huge shock that I was included in that tidy up process – they didn’t require an HR director going forward. Thankfully, the timing of my redundancy hit three years ago when the economy was buoyant, and receiving a redundancy package as well as the payout from the shares did ease the blow. I was lucky. But at the time, being forced out of a job you’ve given many years to is never easy to face, no matter what the circumstances.

So, who looks after the wellbeing of HR during these difficult times?

In my coaching business I have come across many HR people who are really struggling to cope under these current pressures. Their sense of self preservation buckles as they try to deal with making their colleagues redundant - colleagues whom they’ve known over a number of years and who perform well with an excellent record of conduct.

Before we can attempt to minimise the stress and pressures we first need to recognise that we are suffering from it. The next step is to realise what the triggers are. Stress comes in two directions; internally – the stress we create…pressure we put on ourselves, and; externally – work, boss, family etc.

Here are some tips on how to deal with stress:

• Find a support network, either a ‘buddy’ at work, or someone outside whom you can talk to about how you are feeling.
• Build up a resilience to stress and implement the three “R’s” to help focus on things you can control
• Rest: For example, move away from your computer and do something different, such as getting a drink every 30-40 minutes.
• Relaxation: What can you do to chill out? Perhaps listen to music or meditate? Yoga or other holistic therapies can really help.
• Recreation: Physically being active in some way, walking, swimming or going to the gym. Don’t become a hermit - keep up a social life.
• Always aim to take a break for lunch. Taking time out during the day is very important if you want to stay fresh and recharged for the next part of the day. The mind has an opportunity to relax and think about something else, which helps improve the concentration. Change your state, go for a walk and get some fresh air to rejuvenate and restore energy, do something for yourself and fulfil a personal task. These small steps reap huge benefits – stress levels reduce, performance improves and you will feel a lot better.
• Stress can really effect how you sleep exasperating how you feel. Try and follow some basic rules; for example, avoid caffeinated drinks in the evening; go to bed when you are tired; relax before bedtime, many find taking a hot bath really helps relax both the body and the mind; exercise regularly (but not before bedtime) and stick to a healthy diet. By getting plenty of sleep you will be rewarded by performing more efficiently and sustainably.
• Mind Set: Think positive and focus on what you can do and influence, rather than on what you ‘can’t do’. Negativity is unhelpful and gets you nowhere. Ask yourself empowering questions. In the midst of a crisis, for example, don’t ask why you got into this mess; ask how you can improve it.
• Be self-aware: Stress and worry lead to loss of motivation and procrastination. If you feel you can’t break the stress cycle, seek help to get you back on track and in control.
• Consider the ‘what if’s’ and what your options are.

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By HR-Worldview guest author Wendy Reeves, founder of LifeGoal.

Performance Compass (Beta)

We don't usually do this, but today HR-Worldview would like to direct your attention to a useful new tool designed by HR-Meter that is still in Beta.

HR-Meter is looking for folks to Beta test this tool. This basically means "use the tool for a month and give HR-Meter feedback on it".

The tool is called the Performance Compass. Check out this little video HR-Meter sent over.

You can also view the video here.

HR-Meter has asked that we don't give out any more information than this.

So, if you are interested in participating in the Beta of this tool, click the link below to sign up and HR-Meter will give you more information.

Sign up for more information & to Beta Test Performance Compass

Steps to a Great Incentive Plan

July Benefits Installment by Jim Moniz

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A performance based incentive plan is one element of compensation that most companies recognize as vital to the remuneration mix, but developing such an effective program requires some thought and effort.

To get things moving, you first have to define the specific goals of an incentive plan – are you seeking increased sales, improved customer retention, certain margins? Before you put a rewards strategy in place understand what you’re trying to achieve.

Once key result areas have been determined, identify which employees are best positioned to make these results happen; not every employee will be able to fulfill these initiatives.

Next comes quantifying the value created if incentive objectives are met – in other words, what will be the financial result for shareholders? This process typically requires construction of a model that projects base, target and superior result thresholds.

Once the economic value has been determined, you have to figure out the amount you will share with those employees who helped create the upswing.

First determine an acceptable “target” pay-for-performance return and then earmark an achievable “superior” return. Once those two measures are identified you can better establish an incentive goal.

The next step is to determine a standard that defines the potential value in current terms. The potential reward, then, might be stated as a percentage of contributors’ current salary – of course, the big question is the percentage amount. Incentive plan targets that combine the short and long term will likely be in the 60% to 80% of salary range for top managers and between 40% and 80% for second tier managers.

Establishing tiers comes next. After all, not everyone had an equal part in creating increased value. A business needs to define tier levels and assign participating employees – by establishing different tiers you can assign greater potential value to those who will have the greatest impact.

Weighting – or determining how much of a reward should be assigned to the achievement of various categories of expectations – is the sidekick to the tier concept. Weighting should be based on how much of an employee’s role impacted categories.

Determining allocation is the next step. You need to decide when awards will be paid out…at the end of the quarter, end of year and/or sometime down the longer road. Typically, a percentage of total incentives are paid annually and a percentage rewarded in the future.

The final step deals with the long-term portion of the incentive plan. This could take any number of forms. For instance, it could be held in a pool; credited with interest or investment earnings; or treated as a stock or phantom stock incentive.

With this type of incentive program in place, shareholders know the precise value accrued before managers earn incentives; they know the percentage of future growth shared with the management team; and they also know managers will be rewarded for achieving specific and measurable results.

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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.