Incentive programs need two major changes

Incentive programs

You probably know inherently what “incentive programs” are, but to quickly define: bonuses, perks, etc. Extrinsic measures designed to motivate you to do your job better and thus be more productive for the overall company you work at. Usually incentive programs are kind of half-assed — like if you hit a specific target, then maybe you have a chance at going to a three-star resort in Mexico via your company. (I just saw a guy collect on that via Facebook, actually.) Some incentive programs are awesome, though. Obviously, it all depends on where you work.

There are a lot of nuances to this overall discussion, but let’s commence here. Even though many people don’t really understand what their salary represents, obviously compensation is a major part of how we evaluate jobs. If you’re slaving away all week on urgent deliverable after urgent conference call, and you only make about 1.2 percent more every year, that sucks. (“Wish we could do more, Matt! Next time!”) There’s been a push recently that intrinsic motivation matters more. That’s true to an extent, but if you live in a capitalism and you’ve got bills to pay, extrinsic measures matter a lot.

Every human being is different, and their connection to their work is different. (Many people, though — especially men — deeply connect their self-worth to their work.) In general, I’d say people want these things from work — and I read a lot of research on this stuff, so I vaguely know what I’m discussing:

  • Fair compensation
  • Opportunities for advancement
  • Respect from superiors and peers
  • Training / new skill development

That last one has come en vogue recently, because so much about how we do business is changing. If you can’t code, are you relevant in 20 years? No one knows. People want training. I’d actually say you could probably design incentive programs just around that. That’s not the point of this post, though.

There are two things we need to fix to make incentive programs better. Let’s try and fix those.

Incentive programs: The first tier of the landscape

This is going to be a moderately complicated bouncing ball, but try to follow it.

Step 1 is the explosion of the C-Suite. 20 years ago, the C-Suite averaged 5 people. Now it averages 10.

This creates Step 2, or “the key stakeholders problem.” On every project or deliverable, there are more posteriors to pucker and more people you’re “accountable” to.

This leads to Step 3. When all these guys have 20-30 people kissing their ass on every project, formal power becomes dangerous. It’s like fire. You can use it for good very easily, but it can go south pretty fast.

And now Step 4: misused formal power leads to a decline in ethics at companies.

This is all bolstered by Step 5: a stunning lack of priority at most companies about what to do and when.

Here’s where you land now. No one is really sure what to do every day, but we know who we’re beholden to. We want to keep our jobs, so those people matter more than they should. The defining feature of “Was this idea good?” becomes “What level did it come from?” Hierarchy begins defeating productivity. “Innovation” is used as a buzzword to mean “Did a SVP propose that? OK, then it’s innovative.” In reality, most managers are horrible judges of new ideas — a fact repeatedly backed up by research.

This is the climate a lot of us work in. It has many implications for incentive programs.

What’s the first implication?

Well, the most logical version of incentive programs is bonus pay. Bonus pay is essentially ripping North America apart. The problem at most companies is that only executives and their lieutenants are eligible for this stuff. This is mind-boggling because those guys, while they have decision-making authority to some extent (or do they?), are also the furthest from the end customer. Here’s the dirty little secret of most work: if you want to make a mint, run as far from the real consumers of your end product as possible. Hmmm. What?

Here’s a new article from UVA about power and social advantage. The article is mostly about how social class and office politics intersect, which is pretty interesting. Basically, lower-class individuals care more about family and community (usually seems true), so they don’t want to play power games when they get a corporate job. High-class individuals have a very specific definition of success, and so all they want to do is play power games. Pretty logical so far. (Some have claimed that wealth-building is the only fun that these guys have in their lives.)

So here’s the first change we need with incentive programs: involve everyone. Yes, the percentages will be different and the calculations will reward the higher levels. But if you have salary bands from 100 to 120, bonus pay can’t just be available to 114 and above. This is how a lot of companies do it. 114 and above can make more money from incentive programs, but they can’t be the only people getting that scratch. You gotta open it up, especially in the good revenue years.

What’s the second way to adjust incentive programs?

Now it’s about metrics. Most incentive programs have absolutely no transparency, so everyone just assumes it’s based on who is closest to the power core. Also, no one ever really puts a number on their bonus in a given cycle, so no one knows what is up. Pay transparency: still a long way off.




 

In an ideal world, bonus pay would be based on four factors. Notably:

  • Connection to new revenue streams
  • Effective communication with employees and direct reports
  • Giving or community engagement
  • Feedback from those under you on your performance

You can weight these at 25 percent each, or weight them some other way. The first bullet point is the conventional way we assign out money in incentive programs. Keep that! People get it! The second way is admittedly hard to measure. You’d probably have to do it from performance reviews, which have many flaws of their own. Community engagement as a factor in bonus is probably illegal in some way, and most companies don’t want their guys volunteering — they want them hitting targets. Feedback from those under you should be tied to every manager’s compensation, but it often is not.

Why are so off the rails with incentive programs, bonuses, and money?

Scroll back up. The problem with a lot of work is that it’s not really based on quality, even though we claim it is. It’s based on control. People want to control certain aspects and ultimately get more for themselves. Wharton once equated work with “chimp rape,” and for a lot of people, that’s not far off. It’s a big game and it spits a lot of people out along the way. Incentive programs are just a small aspect of that. You want a trip to Bermuda? Or 20K on top of base? You’re going to do a lot of semi-unpleasant things for that cheddar.

Work would make more sense if we began from a more logical place: clear job roles. Don’t hire someone unless you absolutely know what they will be doing and are sure no one already on the team can do it. After clear job roles, we need priority alignment. Who does what, and where and when — and how? Middle managers (“front-line leadership”) should be defining this stuff, instead of crippling the bottom line with low-value task work. We should realize that most of work is psychological in nature, not procedural. People have needs and expectations when they take a job; if they meet their deliverables, the company should help meet those needs. It’s a two-way street. Well, it should be. It often is not.

Incentive programs make sense when there’s transparency around them, metrics used to determine them shared by all, and everyone can get a little bit of the program. They don’t make sense when it’s all screeching, bellowing, no-priority bullshit designed to protect the ineptitude of those higher up a chain. (That’s why we still have so much bureaucracy, as an aside.)

What else might you add on incentive programs?

Ted Bauer