The best way to iron out the negatives and enhance the positives of an incentive program may be to provide a system based on business intelligence, writes Regan McCracken.
It is mind boggling how many incentive schemes are possible, not only is it a challenge for organisations to develop the right one, but it can be just as difficult to accurately maintain these schemes.
Incentive Programs - Mastering the Devil in the Details discussed the pros and cons of different types of incentive management systems (eg, off-the-shelf, custom/in-house or outsourced). But how do we address the many challenges faced by companies in managing the schemes?
The challenges businesses face across the industry can be broadly summarised as:
Producing the outcomes from the incentive program (this is time consuming and resource intensive);
Ensuring accuracy in the face of scheme complexity;
On time delivery and transparent communication of those outcomes;
Relying on one or two people to pull it all together. If these people leave the company, too much intellectual property leaves with them, and this can impact the organisation’s ability to remunerate in a timely and accurate manner; and
Maintaining up-to-date company and industry remuneration policies.
Although each organisation has specifics in place to address their own business objectives and policies, most organisations include some performance-based incentive schemes in their remuneration packages and the basics of each of these are similar: an employee achieves a goal the company has set and is rewarded with a percentage of the goal’s value. This is true for any particular product type whether selling tangible objects (such as pharmaceuticals or consulting time) or less tangible things (such as methodology or intellectual property).
Yes, but what is the best way to address these challenges?
The best way to produce timely and accurate results with any incentive program is to, as much as possible, remove humans from the equation and provide a system based on business intelligence (BI).
A professional BI-based incentive system effectively deals with the dynamic nature of remuneration policies because it is created specifically for the organisation. For example:
the system is built with a high understanding of the business and what it is trying to achieve so as to anticipate likely policy changes; and
it allows the company to have some manual control of the ‘levers’ of the system but still maintain the integrity of the calculation process.
What is the employee benefit?
Employees benefit greatly from a BI-incentive system as it means they can get paid on time and with great accuracy. Should they have any queries, the data can be easily accessed to show why and how a particular result was calculated. The more accurate a system is, the more an employee can trust the results which means less time thinking about a number and more time thinking about the performance that resulted in that number.
What is the employer benefit?
Many employers make use of spreadsheets to calculate incentives which can lead to a debilitating condition known in the industry as ‘spreadsheet spaghetti’. This is where there are so many spreadsheets referencing each other it can be difficult to keep track of the source of the data. Also, the business is forced to assume not only that each individual cell is using the correct formula, but also that the particular spreadsheet being used is the most up-to-date.
This process is fraught with inaccuracy and data integrity issues, not to mention that the maintenance of this ‘system’ often falls to a single talented employee. This employee can become so crucial to the process that should they leave, it can almost be more cost effective to scrap the entire ‘system’ and start from scratch.
On the other hand, a professional BI-incentive scheme works with:
predefined and usually automated data extracts;
holds all of the data in a central location and maintains the integrity of the data throughout;
will have a simplified interface so that training an employee is as quick and painless as possible;
will provide very accurate results in the minimal amount of time; and
these results will be displayed in a way that allows the business to quickly analyse and report on them.
Ultimately, the right BI system is one that is easily maintained and executed, produces accurate figures and provides enough reference data on hand to show why an amount was paid.
About the author
Regan McCracken is Director – Commercial Effectiveness, at Mercurial (www.mercurial.com.au)