Target bonuses are now popular in companies to assess the performance of your employees. Here are the points of vigilance to know so that your variable salary scheme remains closely correlated to this performance and motivating for the greatest number.
Money is not happiness. But it contributes to a large extent. A poorly defined incentive compensation plan and that's all or a lot of the motivation of your teams that may collapse. May you never make the three main mistakes that we have quite commonly encountered in business when defining incentive scheme.
#MISTAKE # 1: PROCEED BY THRESHOLD RATHER THAN CONTINUOUS
A tool is particularly used: Excel software and ready-to-use Excel matrices found on the Internet to define your payout curve. It makes your job easier, but does not allow you to avoid the most common mistake in this area: create a curve made of multiple levels, like a stair. Each step corresponds to a given bonus for the achievement of a predetermined objective: for example, if a scale is set with a bonus received by the employee at 90% of achievement of his objective, then a bonus 95%, one to 100% ... At each step, the employee considers his financial interest to continue or not to progress. If he considers the probability of gaining access to the next level within the time allotted to him low, he will tend to keep his beautiful files ready to be signed for the next period. This is a perverse effect more commonly known as the « fridge effect” which is particularly known in commercial.
As you can see, the motivation and therefore the effort required of a collaborator is a continuous phenomenon (to look for performance throughout the period). This effort must therefore be rewarded continuously by proceeding with a payout curve without threshold
Our online simulation tool allows you to avoid this error in particular, and others more generally, by setting up a payout curve devoid of any level. This allows you a performance of your commercial, and any collaborator, if not exponential, at least continuous.
#MISTAKE N°2: YOUR PAYOUT CURVE MADE TOO MANY LOSERS AND / OR TOO WINNERS
Having too many people removed from a system of incentive compensation is against to the motivation and therefore the overall performance of your teams. To make too many winners is not good either: if everyone wins, what's the point?
Between the unique winner of the Lotto and the school of the fans where all are rewarded, all is question of good dosage. The selectivity of your variable payout curve should be adjusted. Know how to define the limits of your premium schedule: when should you start to reward? When to stop?
The percentage of people in your scale is an important decision-making element of your business strategy. You will not calibrate your scale in the same way with all your employees having achieved between 90 and 110% of their objectives or between 70% and 140%.
A bonus scheme must most often bring the maximum number of employees to the performance, in particular so that your results do not rely on too few and that your system does not demotivate most of your team. Some activities nevertheless allow you to be more elitist than average. For example, in very high margin businesses, where you do not need a lot of salespeople to sell
#MISTAKE N°3 : DO NOT MAKE THE DIFFERENCE BETWEEN PERFORMANCE PERIOD AND PAYMENT PERIOD
Another common mistake is to always correlate the payment of the bonus to the achievement of the objective. The performance period, corresponding to the employee's action plan, does not have to be the same as the payment period! It should not be forbidden to have a longer period of performance. Down payments are a very good motivator, which allows you to pay your teams monthly or even quarterly, while the objectives are defined every six months or annually. It is particularly important to proceed by differentiating these periods of performance and payment when you have a larger variable part (30 to 40% or more) because it affects the daily lives of your employees more directly.
