By Claudine Kapel
In your organization, who is eligible to participate in the annual incentive plan?
Have you had any internal discussions about whether more – or fewer – jobs should be covered by the plan?
Defining which jobs should be bonus eligible can prompt interesting – and sometimes heated – internal debates.
Some may favour pushing bonus eligibility to the lowest levels of the organization because such an approach reinforces inclusivity and a sense of “team.” Others see the annual incentive plan as a management-oriented rewards program and prefer to contain eligibility to jobs at management levels.
There’s no one-size-fits-all answer to the question of how far down organizations should push bonus eligibility. But here are some things to consider if you’re revisiting your incentive plan’s eligibility criteria.
Can you set meaningful incentive goals for the jobs you may want to make bonus eligible? A key feature of a good incentive plan is line of sight. In other words, a bonus eligible employee should be able to influence the extent to which incentive objectives are achieved.
This is important because a key goal of incentive plans is to focus employees on delivering results that are important to the success of the business. The performance impact of an incentive plan will be eroded, however, if plan participants can’t influence the achievement of desired results. So it may not be worthwhile to expand which jobs are eligible for a bonus if these additional jobs can’t really contribute to the achievement of key performance targets.
Do internal peers have the same earnings potential? One challenge with a “management only” approach to bonus eligibility is that it can create internal equity issues when you have management roles and individual contributor roles within the same salary band or at the same organizational level because you have different earnings opportunities for roles that essentially have the same value.
This type of situation can lead to pay equity issues. It can also create morale issues among employees in the individual contributor roles who may perceive their compensation packages to be unfair.
Do the target bonus percentages deliver meaningful rewards? If you’re going to invest the time and resources to make additional jobs bonus eligible consider first whether the intended level of awards will be meaningful. What could lower-level or entry-level employees earn for performance that meets target objectives?
Consider the value of such incentive awards in terms of after-tax dollars. For example, if you’re contemplating target bonus opportunities representing just one or two per cent of salary, the resulting potential pay-outs after tax may be so small that they could actually become a source of employee dissatisfaction.
Is reinforcing a sense of team really important to the corporate culture? Sometimes organizations consider making all jobs bonus eligible because this approach can reinforce key corporate values related to teamwork and collaboration and send a message that “we’re all in this together.”
While there may be good reasons to expand bonus eligibility, an organization will need to balance cultural objectives with other considerations, such as the potential value of awards and the ability to set meaningful objectives.
As you can see, there’s no simple answer to the question of bonus eligibility. But there are some common sense considerations that you can explore to ensure your approach to incentive pay delivers optimal value.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com