(1 votes, average: 4 out of 5)
Loading ...With the state of the economy, it is no surprise that most companies are rethinking their reward strategies. In a strong economy, one of the major arguments in favor of incentive compensation is employee retention. During a recession, the main argument is to keep employees motivated.
Many companies have different philosophies when it comes down to rewarding their employees. Some of them are currently looking at cutting costs, cutting incentive programs, cutting rewards, cutting travel, increasing quota amounts, etc. Others, on the contrary, are looking at reducing base pay, and to increase incentive compensation; they figure that if employees are only paid for performance, then they can afford to pay them. Then there are those who don’t currently pay commissions and start thinking that it could be a pretty good idea. Finally, there are many companies who are not necessarily looking at transforming their incentive compensation plans, but are looking at making them work better.
To have a better idea of how various companies are reacting to the economy, let’s look at some survey results.
Ann Bares posted about many studies conducted by Hewitt (411 organizations), Watson Wyatt (248 organizations), Mercer (190 organizations, based on yesterday’s WSJ article), WorldatWork (members only, 698 members responding to a Quick Poll) and BLR (Business & Legal Reports) (518 organizations).
Paul Hebert also posted about changes in the incentive industry, commenting on a few surveys from the Incentive Research Foundation.
I think the most interesting survey is the one from Towers Perrin. With over 450 companies participating to the survey in October, it shows how 39% of the participants were somewhat likely to very likely to reduce annual incentive/bonuses and how 18% were planning to reduce the number of participants receiving long-term incentives.
One of the big questions is, why would companies cut into their variable compensation programs in a down economy, when it is such a great tool to control payouts against actual performance.
As Ann pointed out, the only good reason to take “take a hatchet to their plans” is to get rid of discretionary plans not tied to measurable performance results, or to get rid of poorly designed compensation plans.
How should all these surveys be interespreted from technology perspective? My interpretation is that companies may have less budget for new large IT projects, but on the other hand, it could be easier to justify the need for effective sales performance tools… so while I don’t expect there will be a huge growth in the industry in 2009, I think it will maintain itself. From an implementation perspective… there should be a lot of work from implementing new plans, enhancing existing compensation plans, integrating systems from all the larger mergers that took place in 2008, etc.
I often get asked about if I think the SPM vendors will survive this economy, and I don’t see why not… if the company fundamentals are strong enough to re-assure people considering them. One thing is for sure, it will be an interesting year!
Julien - Thanks for the link! Cutting back the use of sales performance tools makes about as much sense as eliminating variable pay programs - but these studies seem to suggest there is a fair amount of short-sighted thinking out there these days.
It will be an interesting year, won’t it?!
I think both you and Ann have hit the nail on the head - companies will use the economic issues we’re facing as the excuse to do some plan clean up. I have seen it happen with staffing - layoffs due to “economic” reasons when in reality it was a cover to let some people go that should either have been let go before or never hired in the first place.
SPM/ICM adjustments will be the same. It’s a much easier path to blame the economy than yourself or your staff for making the initial mistake.
I do think during tough economic times we see an “evolutionary” die off of companies and ideas that just didn’t have the ability to live through the changes. It’s just part of the circle of life.
Julien, very insightful post, especially your comment: “In a strong economy, one of the major arguments in favor of incentive compensation is employee retention. During a recession, the main argument is to keep employees motivated.”
I would argue keeping employees motivated to produce at their highest level of effort — be fully engaged employees, if you will — should be a priority in any economy, strong or slow. Company leaders always need employees delivering their best effort, particularly when that effort is fully aligned with company goals, objectives and values as well. A recession only amplifies the need as leaders now need to overcome employee fear, anger and resentment in addition to the rumor mill to get that best level of effort.
Strategic employee recognition programs are a key tool to ensure employee effort is maximized, aligned with company objectives, and reflective of company values. These programs of course are useful sales incentive and similar initiatives, but strategic recognition is far more effective when applied to the entire employee population. All employees need recognition for their efforts and validation that their work is appreciated — now more than ever. If those recognitions are tied to a company value demonstrated or strategic objective achieved (or contributed to), then employees begin to see how their individual efforts contribute to company success. This is by far the most positive and effective way of encouraging repetition of precisely those actions company leaders need from every employee to succeed in this recession.
I blog about this need for recognition in an ailing economy here:
http://globoforce.blogspot.com/search/label/recognition%20in%20an%20ailing%20economy
Another important point as companies do “plan clean up” as Paul mentions — most companies, especially large global organizations — have multiple, disparate and largely untracked recognition efforts in place. Simply by consolidating all of these programs into one consistent, governable and compliant program, companies can save up to 50% of their current investment in recognition.
Before cutting programs, company leaders should audit what they already have in place and find efficiencies through consolidation first.
Ann, Paul - Thanks for having done all the hard work in finding, compiling and interpreting those survey results!
Derek - thanks for the comment. You are right and I didn’t mean to make it sound like I believe motivation is only important in a down economy, or that motivation and reducing employee turnovers were the only reasons to develop a variable compensation strategy. There are many other very important reasons for incentive compensation to exist (whether in good or bad time) including increasing revenues (through an increased performance), and decreasing cost while making them more predictable.