What problem are organizations trying to solve with incentive pay?

Is an incentive plan the simplest, most effective way to address the problem?

Most managers believe that incentive pay plans encourage the desired behavior, drive performance improvement, and reward (individual) achievement. That may be the case, with certain kinds of work.

But before looking to incentive pay to improve performance, look at the work system.

What are the organizational impediments that might be preventing desired performance?

What else might be preventing people from achieving the desired results?

Do people have a clear understanding of how their work contributes to the bottom line and the companies mission?

Do people have a clear expectation of what’s expected of them day-to-day?

Do people have the tools to perform?

Do they have the skills?

Are they receiving feedback from the system and from their peers and managers?

Will individual incentives actually encourage the behavior the organization says it wants?

Will the side effects of incentive pay help or hinder the organization?

These questions need to precede the decision to use incentive pay to drive behavior and results.

As Ann Bares, writing for Workforce.com says,

Much as our management “customers” might like to believe the contrary, incentives are not a sound substitute for an effective organizational structure, good management practices or clear and regular communication.

So work on improving the system and managing well before looking to incentive pay to improve performance and results. That’s the simplest thing to do. Plus, for interdependent work, incentive pay is likely the wrong level to pull.

Read Ann Bares’ full article here (requires free registration).