Incentive Plans…Be Careful What You Wish For!

January 3, 2007

Do you want to motivate your employees to achieve specific goals?  Have you considered an incentive plan?  If you have considered a plan or you have actually implemented a plan how can you be sure you actually achieve your goals?

I have often said, be careful what you wish for with an incentive plan because you may actually get your wish!  What exactly do I mean?   If you want individuals to sell and you design a plan to reward results, how will that plan effect your staff’s ability or desire to work together?  If your plan is individually based, you can be sure human nature will play a major role in how your staff acts and they will become “islands” within the organization.  Not wanting to share leads or work together to close sales.  Is that what you want?  I doubt it?

So, what is the best plan design?  The answer really depends upon what you want to achieve.  If you want to increase Company sales but at the same time reward individual achievement, then you must combine the two.  For example, in order for an individual to receive a bonus, one restriction might be that the Company must achieve its overall objectives. 

Incentive plans could also include ownership in the Company.  This is particularly beneficial in personal services businesses including Consulting companies.  One successful plan approach is to allow your professionals to share in the equity of your Company based upon their performance and based upon the growth of the firm.  In essence, “new” equity is distributed based upon Company growth to those who contributed to that growth.

Of course, issues around Company “control” must be addressed and can usually be accommodated with non-voting stock.  But the details of such a plan should be discussed with your accountant and Lawyer.

So, as you design any incentive plan, be sure to envision what the end result will be taking into account what you would like to achieve and, of course, human nature.

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

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