More Than Just the Money
The need to align employee behavior and performance to business goals is the key driver prompting 88 percent of companies to use incentive compensation programs. According to a new Aberdeen Group survey, variable compensation management can be one of the most effective levers for aligning employee behavior to corporate business goals.
Aberdeen, which surveyed 206 companies to measure the impact incentive compensation is having on employees achieving goals, found that those companies that implement incentive compensation management (ICM) applications achieve better business benefits in terms of revenue growth and profitability, as well as reduction in staff turnover. Furthermore, companies with deployed ICM applications are able to outperform most companies in rolling out new changes or programs, such as sales plans--they are 50 percent more likely to design, model test, and implement in less than one month. "An increasing number of companies are using incentive compensation to motivate more employees, to reward exceptional performance, encourage customer satisfaction, and retain talent to meet and exceed corporate goals," said Cindy Jutras, vice president and service director, HCM, ERP and manufacturing at Aberdeen Group, in the report.
Variable compensation is becoming the norm in managing the sales force to drive sales and revenue goals, according to Aberdeen. Seventy-six percent of sales managers receive bonuses or commissions based on individual performance, while 65 percent of professionals (including sales representatives) receive bonuses and/or commissions based on individual performance. Not only was considerable time and effort to design and change incentive plans selected most often as a significant barrier to successful implementation of programs, but 24 percent indicated the process is manual, error-prone, and time-consuming. Yet only 36 percent of respondents included the automation of previously manual processes in their top three responses to these challenges, and in fact only 23 percent identified plans to invest in technology. "This clearly shows a lack of understanding in the role compensation management applications can play in achieving these goals," Jutras said.
Based on the survey's findings, Jutras says companies should implement a balanced scorecard goal-setting and measurement system for executing the company's strategy. And while money is perhaps the ultimate motivator, feedback from the boss can be just as important, so implementing a structured performance management process to give workers feedback on their performance is critical. "With an ICM application implemented, allow workers to go online immediately after work performance to learn whether they qualify for a bonus, and to determine the financial impact of their compensation."
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