Incentives for non-exempts? It can be very successful, say consultants Brandon Cherry and Brooke Green, but you have to be careful structuring and managing the plan, and wage/hour regulations make it trickier.

Cherry and Green, both of whom are principals at HR consultant Hay Group, offer the table below to show how incentives fit into the total rewards picture. They offered their remarks at a recent webinar hosted by BLR/HR Hero.

 

Compensation type

Comment

Value of being a member of the organization

Benefits/
Perquisites

Little flexibility,
stable, enduring,

Value of your role

Base salary

Somewhat flexible
less stable

Value of your results

Incentive pay

More flexible, little stability

Value of your contribution to a particular initiative

Recognition, spot bonus

Flexible, volatile

Purpose of incentives

Cherry suggests that typically incentives should:

  • Attract, retain, engage and motivate talent
  • Change and direct employee behavior
  • Reward top performers
  • Control fixed compensation costs
  • Self fund variable compensation costs
  • Share the risks of the business with the one of the core stakeholder groups—the employees
  • Enable employees to identify with and share in the success of the organization
  • Send a message regarding company values

Your job descriptions are already written and keyed onto CD format. Thousands of HR managers are flocking to get SmartJobs! Try it at no cost or risk and also receive the free report: 5 Mistakes Everyone Makes with Job Descriptions and How to Avoid Them. Go here for info.

Factors to Consider in Plan Design

In assessing the best plan design for your situation, consider the following enablers and barriers to variable pay:

  • Business Focus: Extent to which the organization has a clear focus on consistent goals and directions.
  • Team Dependence: Degree to which accomplishments depend on integrated efforts among employees and departments.
  • Empowerment: Extent to which employees are encouraged to take risks and suggest improvements.
  • Willingness/Ability to Change: Degree to which employees trust supervision and are motivated to get the job done.
  • HR Programs: Effectiveness of measuring job performance and the perceived equity of the reward systems. You have to be able to measure and track performance.

Cherry offers a table to emphasize the factors that help make an incentive program successful:

Strategy

Design

Execution

  1. Clear understanding of what the team/ individual has to achieve and why
  2. Minimal external/ uncontrollable factors at play or plan in place for how it would affect the incentive
  3. Commitment to review and re-evaluate against strategic and tactical criteria
  1. Employees have been involved and remain engaged in the design and operation of the plan
  2. Early first drafts have been reviewed with key constituents
  3. Tools/ resources are in place to enable employees to reach goals
  1. Clear management support
  2. Dialog with employees and investment in communication
  3. Poor performance has been tackled via performance management
  4. Employees understand the metrics and the business
  5. There are clear expectations for performance

Watch out for those uncontrollable factors, says Green. For example, in wineries, you might be tempted to measure workers on the quantity of grapes, but that’s a factor of weather. So it’s better to measure, production or waste or some other factor more within control of the workers.

Throw your keyboard away—More than 700 prewritten, legally reviewed job descriptions ready at the click of your mouse. Use as is—or easily modify, save, and print. Try BLR's remarkable SmartJobs program at no cost and also get a free special report! Download Now.

Six Types of Incentive Plans

Green outlines six approaches to incentive design for non-exempt employees. The table below shows advantages and disadvantages for each approach.

Plan Type

Overview

Advantages

Disadvantages

Discretionary
  1. Payout is based on leadership judgment of contribution and achievement. Most common in smaller organizations; little infrastructure
  1. Flexible
  2. Allows manager to reflect effort and intent; not just result.
  1. Questionable motivation value.
  2. Can create perception of inequity; may effect retention.

Profit Sharing
  1. Pool is generated from earnings above threshold.
  2. Pool is distributed evenly, either as percent of pay or equal amount.
  1. Common fate approach; everyone is paid on same criteria.
  2. Company does not pay if it can not afford it.
  1. Not a clear link between pay and individual performance; does not always get attention.

Balanced Scorecard
  1. Payout is based on achievement against 3 to 5 measures.
  2. Payout is the weighted average of achievement
  1. Drives focus one key measure, but not at the expense of others.
  2. Builds holisitic view of the business.
  1. In group plans, link between pay and performance can be undermined.
  2. Smallest measure tends to be ignored
  3. Can be complex.

Gainsharing
  1. Group plan with financial measure driving funding or having the greatest weight.
  2. Typically found in non-exempt or team-based work environments.
  1. Most successful when merged with TQM, customer service, or similar initiatives.
  2. Excellent vehicle for teaching the business.
  1. Can become an entitlement if based on standards or goals are not updated.

In tomorrow’s Advisor, the rest of the incentive types, plus great news—your job descriptions are updated, ADA-compliant, and ready to go with BLR’s SmartJobs.