83 per cent of organizations use short-term incentives: Study

But few of them measure their effectiveness
|hrreporter.com|Last Updated: 11/16/2010

The majority of Canadian organizations have short-term incentive plans in place to motivate employees to achieve performance goals, according to a new study by the Conference Board of Canada.

The study found 83 per cent of 434 organizations use some form of short-term incentive plan, which can include variable pay, performance bonuses and annual incentives.

However, in another survey, 69 per cent of 130 organizations that have at least one incentive plan in place indicated they were not able to assess the cost effectiveness of their incentive plan against the level of performance achieved by the organization, team, or individual, according to Making Short-Term Incentives Work for Your Organization.

“With so many organizations rewarding employees with incentive pay, organizations need to do a better job of finding a link between pay plans and business results, to ensure they are getting value out of their incentive programs,” said Karla Thorpe, associate director of compensation and industrial relations at the Conference Board of Canada.

Although most organizations find it difficult to measure the effectiveness of their plans, they still believe these plans are somewhat effective in achieving their intended objectives, such as driving organizational or individual performance or linking individual and corporate results, according to the Conference Board.

The Conference Board's Compensation Planning Outlook 2011 survey found 54 per cent of organizations believe their short-term incentive pay plans are effective or very effective. While 42 per cent are ambivalent about the effectiveness of their incentive program and four per cent indicated their plans are ineffective or very ineffective.

Among organizations that measured the success of their incentive plan, corporate results are most commonly used to determine the plan’s cost-effectiveness (97 per cent).

In the Compensation Planning Outlook 2011, organizations indicated they expect to spend, on average, 11.6 per cent of total base pay on short-term incentives, a slight increase from the 11.5 per cent planned for 2010.

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