The most common type of incentive program offered by employers is an annual bonus plan. Likewise, the most common source of compensation frustration for employers is their annual bonus plan. Consider the following observations from a 2016 WorldatWork study:
Only 10% of responders indicated they felt their annual incentive plan was effective, while another 25% thought theirs was moderately effective. Thus, 65% were dissatisfied with the results of their plan. And these responders were, generally, representatives of larger, successful companies. If large companies can’t get it right (i.e., those with access to high-paid consultants and experienced executive leadership), what chance do smaller companies have?
In short, exasperation is a ubiquitous emotion among business leaders when it comes to this topic. And that is a serious problem because virtually every company feels the need to make a good faith effort to share value with their employees. No CEO, president or business owner believes he or she can exclude an annual incentive from their compensation offering and still recruit and retain the kind of talent they want.
To address this problem, VisionLink has just introduced a revolutionary online tool—BonusRight. It was developed out of our experience designing, testing and refining incentive plans for companies of all sizes and industries over the past 21 years. We have learned what works and what doesn’t—and have now made that experience available in SaaS form.
Bonus Right allows you to design, communicate and manage your bonus program all in one place—simply and effectively.
In honor of incentive planning season, VisionLink is offering a 60-day free trial of BonusRight. You can request a no-obligation demo here: http://www.vladvisors.com/bonus-right-demo. (The offer has an expiration date, so I suggest acting soon if you want to take advantage of this risk-free opportunity.)
The reason most company bonus plans are not effective is because they are built on the wrong premise. The majority are either too discretionary or too complicated. Most incorporate multiple metrics designed to micro manage employee behavior. They end up either being exploited by employees for short-term gain or are viewed as confusing and manipulative. In either case, the company loses.
The right premise for building an annual incentive plan is to use profit as the foundational metric. One or two other non-correlated measures might be included but profit must be primary. This aligns everyone with the mindset of the business owner and creates a unified focus on the financial engine that drives growth and expansion. By centering the incentive on profits, employees come to understand that when the company is profitable, everyone wins.
The Goal is Partnership
The reason a focus on profit is so important in a rewards plan is because the goal of value sharing is to create a sense of partnership between business owners and leaders and their workforce. If you own or otherwise run a business, you want your people looking at the company through the same set of lenses you do. That cannot fully happen unless one or more components of their compensation align with the financial engine that drives the enterprise—profit.
Are there exceptions to the profit rule when designing an annual incentive plan? Yes, but they should be just that—exceptions that are only applied under “exceptional” circumstances: For example, when the business is coming out of an economic downturn and you are trying to reward incremental growth while the company crawls its way back to profitability. But even then, the principle is the same. You want to reward value creation. That may be based on hitting a revenue target, achieving an increase in sales or fulfilling some other progress measure. Regardless of the specific metric, the goal should be the same: create a unified financial vision for growing the business.
As we head towards 2018, commit to a more effective approach to value sharing with your people. Reject the unsuccessful practices that have caused so much frustration in the past. Instead, embrace the 21st century approach to building your incentive plan--one centered on profit and partnership. In the process, check out BonusRight as a potential way to make that happen.