Can You Use Incentive Pay for Nonexempt Employees?

How Can You Use Incentive Pay for Nonexempt Employees?

“Pay for performance can apply to all levels of jobs within an organization. Recent studies have shown that organizations are beginning to use more variable compensation (or incentives) as it relates to the proportion of base pay, and they’re marketing that to employees—not only when they’re attracting them to come work for an organization, but they’re also using it to help motivate and retain current employees.” Katie Miller Busch explained in a recent BLR webinar.

For this to work, organizations need to understand that there’s a difference between bonuses and incentives. Bonuses can be a valuable component of the total pay package, but incentives really drive performance. This is important because we want to drive performance. It’s also important because there are different overtime pay implications for nonexempt employees who receive discretionary versus non-discretionary variable pay.

Incentives are good to use to keep up with change. “Economies change. Our customers’ needs change. Management expectations change. Work expectations change. We need an incentive program . . . that allows for flexibility to adjust to . . . changing business strategy.” Busch explained. In other words, incentives need to be dynamic. There is a continuing need to make adjustments to align with the business strategy and operational goals.

One of the key challenges is for management to be forward-thinking when creating the incentive program. The management team needs to be able to help the employees link the incentives to organizational success and be able to explain this to the employees. Asking these questions can help this transition; here’s what to consider before expanding your incentive plan to cover nonexempt employees:

• Does it link the employee and/or team contributions to the organizational success?
• Do the metrics and targets help to influence employee behavior?
• Will it motivate and engage employees?
• Will employees strive to increase productivity, efficiencies or sales because the reward for success is meaningful?
• Will it help the organization maintain a competitive place in the labor market while controlling compensation costs?
• Will their participation in the plan re-enforce the organization’s values?
• Do the communications around the plan make it clear that the incentive pay is not an entitlement, but a reward for performance and results that go above and beyond?
• Will your payroll and recordkeeping systems support the proper calculations of the regular rate of pay and any overtime?

Asking these questions will put employers on the right path to implementing a successful incentive pay program for non-exempt employees.

For more information on implementing incentive pay for nonexempt employees, order the webinar recording of “Incentive Pay for Non-Exempts: Tips for Creating an Effective and Legal Pay Plan.” To register for a future webinar, visit http://store.blr.com/events/webinars.

Katie Miller Busch is the owner of HR Compensation Consultants, LLC and offers more than 15 years of progressive compensation experience having worked in various industries, including high-tech, loyalty marketing, biopharmaceuticals, retail, manufacturing, and logistics solutions.