Creating a workplace where employer and employee interests are aligned can be a simple, uncomplicated process — but it requires a high level of employee understanding about the organization’s goals.
Employees need to understand what the goals are, what they can do on a day-to-day basis to help achieve those goals and how they will benefit from the success. Communication between employers and employees is critical to achieve this understanding. Incentive pay provides an excellent opportunity to open the lines of communication about what matters to the future success of the organization and its employees.
There are critical junctures throughout an incentive process where meaningful dialogue between both parties is not only opportune, but essential.
Beginning the dialogue
To design an effective incentive plan, employees need to understand how the organization makes and loses money, what gets and keeps customers and how they can make a difference.
While the design process often begins with the senior management team defining the objectives of the plan, the establishment and training of an employee design team at the start of the process is critical. Typically, a third-party facilitator leads the design team. However, at the first design team meeting, a member of senior management needs to explain why the organization is putting an incentive plan in place and the employees' role in its design and implementation.
At the outset, there is often an enthusiastic outpouring of ideas from employees, focusing on what needs to be done to help them do their jobs more effectively and improve performance. One design team recommended ways in which they could reduce machine downtime and improve customer service. Another design team asked for specific training to help improve safety. Employees need to develop and take ownership of the things they can do to help improve company performance.
In a series of meetings, the design team will continue to develop the incentive plan. The members of the design team will then present and discuss their recommendations with the senior management team. This requires they explain and justify design features (for example, performance criteria, reward calculation and eligibility requirements). Surprisingly, at this point, there are seldom significant differences of opinion between senior management and the design team.
Having employees design the plan helps ensure measures are based on things within employee line-of-sight, instead of distant corporate objectives. It also helps create a plan that reflects the employees' interests. For example, one team comprised largely of union members suggested the payout be in the form of company shares so as to reduce short-term tax liability. The dialogue between employees and senior management helps build trust and creates a partnership aimed at the success of both parties.
Getting everyone on board
Communicating the incentive plan's objectives, measures and targets during the plan's rollout to the broader employee population demonstrates what the organization values and what it needs to achieve during the year. Senior management has a key role in communicating why an incentive plan is being implemented and how it can benefit employees. However, it is the design team's involvement in the design process and the rollout that is critical to getting general employee buy-in.
Employee involvement demonstrates that it's more than just a new incentive plan. Rather, it’s a new relationship between the employers and the employees — a relationship where information will be shared and employees will be asked what they think. Often this change in management style is met with skepticism. Employees may think management is up to something, like using the incentive plan to set new minimum standards of performance. Open, honest and clear communication about objectives, the design process and design details will help address this skepticism.
Organizations have many communication vehicles they can use during the rollout phase. Employee focus groups, presentations, information brochures and plan 'Q & As' are all effective tools. Whatever the technique used, having employee design team members play a key role in communicating the plan to colleagues will help foster support for the plan.
Keeping the lines of communication open
It's important that employees be given regular updates about how the organization is doing in relation to targets. When these numbers are discussed, employees have the opportunity to give their input about improving performance. This type of dialogue helps employees understand how day-to-day activities can have an impact on company performance.
Regular communication about the plan reinforces what is most important to the organization and what employees need to focus on everyday. Attaching monetary rewards to goals gives the message added weight, helping to keep the attention of employees. When employees are focused on achieving plan goals, and rewards, employee and organization interests are aligned.
Sending a message
Simply paying out rewards is not enough. It is important to discuss how rewards were earned. Employees should never be left wondering what they did to get their reward, why they didn't get more or how they can get a larger one next time. If targets were not met and rewards not paid out, there is an opportunity to discuss why goals weren't achieved and how performance could be improved the following year.
Many companies will hold an event at the end of the year to celebrate the paying out of rewards. A celebratory event is itself communication – it acknowledges the efforts of employees and shows that everyone in the plan is part of a team.
Incentive pay provides a context for dialogue about what employees can do on a day-to-day basis to help achieve company goals. This dialogue not only helps create a workplace where employees are focused on what is most important to the organization, but can also help educate senior management about the ongoing challenges being faced on the front-line.
Organizations need to maximize the communication opportunities incentive pay provides. Communication around incentive pay can help align organization and employee interests, facilitate greater employee involvement and help achieve the level of employee understanding about the organization that is critical to creating an engaged workforce.
Scott Williamson is a consultant with The Winter Consultant Group. For more information, visit www.wintergroup.com.