Benefits and Compensation, Startup HR

Are Your Employees’ Incentives Aligned?

Whether it’s a sports team, a group of laborers, or a work team in a corporate office, the goal of any team leader is to create a cohesive unit that functions as one. Strong leadership can help make this goal a reality. But even the strongest leader will struggle to create cohesiveness if incentives aren’t aligned.

Lack of Alignment All Too Common

At first, it might seem like the incentives of a team at work would naturally be aligned—doesn’t everyone want to see the team and the organization succeed? But when digging down, one will typically discover sources of conflicting incentives.

An obvious example is payment structures. A sales rep’s compensation is often largely driven by commissions, meaning this worker is heavily incentivized to make sales to help his or her own bottom line, even if those sales aren’t necessarily in the best interest of the organization. For example, the sale of a highly customized product might bring in a nice commission for the sales rep but put an inordinate burden on the production team relative to the margins.

Similarly, when some employees are paid hourly and others are paid on salary, the hourly employees may be more motivated to put in extra hours—and accrue lucrative overtime—compared with salaried employees, who don’t see another dime for working late.

Payment Doesn’t Tell the Whole Story

Payment is a key element of an employee’s motivation, but it doesn’t tell the whole story. Performance in different job roles is also evaluated differently.

An employee in the compliance department, for instance, might be far more risk-averse than an employee on the marketing team because the compliance employee’s performance is based on avoiding compliance risk, while the marketing employee’s performance is based on increasing return on investment (ROI). Ultimately, performance tends to impact compensation, but even at the more immediate level of feedback from superiors, employees are incentivized psychologically to seek praise and avoid criticism.

The best teams are those that work together toward a common goal; however, achieving that kind of cohesiveness is extremely difficult when incentives aren’t properly aligned. In a follow-up post, we’ll discuss some strategies for achieving that alignment.

Lin Grensing-Pophal is a Contributing Editor at HR Daily Advisor.