Human Resources News & Insights

Why your pay-for-performance plan isn’t working

In these days of tight payroll budgets, pay-for-performance programs seem like a logical approach. So why don’t they work better?

Here are three incentive program mistakes and how to avoid them, courtesy of author Dave Logan:

1. Rewarding the impossible

A CEO steps up in a meeting and announces new rewards for meeting increased sales goals.

Seems straightforward enough. Sell more, make more.

But salespeople hear the phrase “increased sales goals” and groan. They’re out there every day, trying to move product or sell services, and customers  aren’t biting.

The real problem: The company’s product doesn’t fit current market needs or is priced incorrectly.

So offering increased bonuses for selling more isn’t likely to work very well.

The problem here is bigger than just sales – which means it can’t be fixed with a simple sales incentive. And placing this impossible burden on the sales staff is bound to lead to morale problems and turnover.

2. Making big changes to fix small problems

Employees aren’t robots, and not everybody’s going to thrive in the same environment. Sometimes well-meaning members of upper management see that a handful of employees aren’t doing well in an incentive program, and try to redesign the entire structure to accommodate the laggards.

But that’s the equivalent of trying to kill a gnat with an elephant gun.

And you can expect that your staff – most of whom were doing fine under the old program – will be unhappy.

The best approach is coaching the lower-performers on better ways to take advantage of the program — and know that some people just aren’t going to be able to cut it.

Note: If you’re using team-based incentives, it’s important to reward individual accomplishments of team members as well. Clearly, some people will contribute more to team goals than others, and you need to be able to single those staffers out for their performance.

Otherwise, you’ll be rewarding some staffers for riding others’ coattails.

3. Running afoul of the law of unintended consequences

Clearly, no company will set up an incentive program to do more harm than good. But that doesn’t mean it doesn’t happen.

Example: A call center rewards staff for making more calls each hour.

Initially, the workers are more productive and efficient under the program – but quality and customer satisfaction drops.

And when those concerns rear their ugly head, the gains in speed drop back to what was normal before the incentives kicked in.

The end result: Employees realize the incentives are bogus and revert to what they used to do. The resulting drop in morale affects productivity even further.



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