Here they come, those who question the pay-for-performance credentials of the current executive pay process?  Every spring, like daffodils popping through the warming ground investigative articles appear and challenge the validity of how the executive suite is rewarded.  Critical commentaries by notable Compensation experts, as well as a financial analyst here and there, will question whether job performance has warranted the amount of financial rewards reported in proxy statements.

What follows is usually a series of back-and-forth speeches and written pieces both criticizing and defending the logic of the executive reward process.  However, those who press their divergent viewpoints seem unable to reach consensus on an equitable process, and so next year the cycle of reward and debate repeats itself.  Such has been the case for years.

In my mind though, it is the proverbial “man in the street” or “court of public opinion” that truly matters.  And if you take that point, that it is the general public who needs to be convinced that our corporate leadership isn’t gorging themselves on financial largesse like hogs at a feed trough – then the multiple explanations that appear each season touting the rightness of executive pay fall disappointingly flat.

Unfortunately it is not the negative impressions of the general population that is being addressed by these pundits, but instead you find that a complex argument is often presented in support of those who are being challenged, the executive leadership themselves.  This is a circle-the-wagons strategy crafted by status quo enablers to refute challenges to the current executive reward process by providing a technical defense that would not be understood by that same general population.

I recall a former CEO once telling me, it’s a matter of optics; the present system of determining executive suite reward looks bad to the general public.  No amount of explanatory formulae or charts and graphs is going to change that impression; the more complex the defense the more skepticism that will be generated.

Another senior executive cautioned me that if I couldn’t sell my proposal on a single sheet of paper, including a lot of white space, then my arguments wouldn’t convince him.  In other words, keep it simple, keep it clear and keep it brief.

All too often the defense of executive pay is presented as a series of formulaic methodologies to be utilized by corporate leadership (with the support of consultant intervention) to refute their critics.  However, even as these diverse calculations try to make their point the wider audience will remain confused, skeptical and unconvinced, so how has the argument been advanced?   The reward system will still look bad.

I support the idea of measuring performance to gauge the amount of reward.  Who can argue with that?  But the process being described by those touting the current approach is flawed by its complexity, by its confusing array of acronyms and ultimately by its inability to explain itself in laymen’s terms.

Apologists for executive pay often fail to discuss / explain a key element of pay that looms large for the rest of us – determinants of “how high is up” or how much is “enough” reward.  Given that for similar performance non-executives typically receive considerably less reward, it is disappointing that this disconnect in thinking is so often ignored.  A large portion of the looks bad environment is the amount of the reward.  Should those on “mahogany row” have parameters for their rewards, even maximums or caps like the rest of the population?  That sounds fair, doesn’t it?

The problem connecting a pay-for-performance concept with examples of executive pay excesses is an optical one – it looks bad!  Attempts to rationalize the practice with complex terms, charts and theorem won’t convince anyone outside of the board room.  The way to change that negative impression is to challenge the convoluted methods that executives use to rationalize their reward structures.  The general population (not the financial analysts, proxy readers or even compensation specialists) wants to see a direct cause and effect (simple, clear and brief; performance equals reward), as that is how they are rewarded in their own lives.

Why make rocket science out of a basic concept?

The holidays are over.  The melody of jingle bells is slowly fading into the background as employees trudge back to work to face the long winter ahead.  This is also when companies experience their annual January headache – the process of setting new performance objectives for their management incentive plan.

A new year has begun.

Headache?  Most managers would rather focus on closing down the old year and maximizing their bonus calculations.  But at the same time HR starts to compel that attention be paid to managing the new cycle.  Something’s got to give, and right now it’s usually effective planning.

Which presents a risk.  Because with a substantial payroll expense allocated to management bonuses it is critically important for plan designers and implementers to get this first step right.  Everything that follows after is cause and effect.  Poor planning up front usually means that bonus dollars spent later may reward effort neither anticipated or even necessary.  The results you didn’t plan for, or didn’t prioritize, won’t be delivered.

But somehow the bonus pool of dollars will be spent anyway.  And where does it go?  Perhaps not where and why you had intended – but instead rewarding performance that may not be in sync with broader company objectives.

Let’s face it, though – managers enjoy setting objective, quantifiable and measurable goals as much as they enjoy writing job descriptions.  But they don’t, do they?  So as an HR Leader, generalist or specialist, you might soon find yourself acting the dentist – pulling teeth, struggling with recalcitrant managers to get proper employee objectives established by the end of the first quarter.

It can be frustrating.

While you’re grappling with these reluctant managers, trying to help them get their act together, you should remember a few key guidelines regarding the effective use of rewards to motivate achievement of company goals.

• Focus employee attention on company / department objectives via prioritization.  Set relative weightings to reflect their individual importance to each other (this is most important, this is secondary, etc.).  It would be a rare occurrance when all goals are of equal importance.

• As most employees have multiple objectives, any one target weighted 10% or less of targeted incentive compensation will be ignored, if possible.  Why?  Because you’re announcing that this is not an important objective.  And as incentives are all about behavior change, employees may not even cross the street for 10%.  You’ll need a bigger carrot.

• Token objectives only receive attention when expected achievement is considered so easy that success would have occurred even without an incentive.  That’s wasting money, right?  Don’t go there.

• On the other hand, have a care before you assign more than 50% to any one objective.  Employees might figure that exceeding expectations for just one key goal will generate sufficient reward for their efforts.  Then they may not focus on other important business goals.

• Limit objectives to no more more four, else you risk diluting effort and causing an “everything is important, so nothing receives focus” performance year.  The business receives more value for rewarding results vs. activity – so keep the emphasis here.

Human nature suggests that the natural tendency for most employees is to concentrate on the goal with the highest reward and least resistance first.  They may even decide to ignore other objectives – no matter the value to the company – if in their mind the reward for the prime objective makes up for lost opportunities elsewhere.

This is especially true for sales employees, who often ignore small payout objectives in favor of focusing on the bigger ticket reward goals.  So you need to put your money and weightings behind the goals that have the greatest impact on the business.

Bottom line is that you want to avoid disconnected effort.  Your key people should not be keying off on objectives that are less important than those you want them focused on.

Don’t let them head left when you want them to turn right.  Your money might take the wrong turn as well.

It hasn’t been that many years ago that the term “business casual” was coined.  To many business leaders though, the phrase meant no more than wearing a red tie, and perhaps only once a week.

Well, that was then.  Today, attitudes and customs are quite different, and typically much less conservative.  For example, it is not uncommon in some circles for male employees to forgo the use of socks within an office environment.  I know, because recently I visited such an office and saw for myself.

But is this clothing revolution a global phenomenon, where everyone is doing it, or are there minefields of differing customs out there, waiting to trip up the unwary business traveler?

According to a new global survey (Ispos / Reuters), clothes still do make the man – or woman.  Depending on where an employee lives, putting a best foot forward – at least at work – is still key to upward mobility and career success.

Or sometimes not.

As you might expect though, customs of acceptance have evolved – though not in a uniform fashion.  Researchers have found that attitudes about the use of proper attire in the workplace differ from country to country, which leads to some interesting and diverse attitudes about perceived workplace “slackers” and “achievers.”

Have you ever arrived at a meeting dressed for the Boardroom, only to discover everyone else wearing collared shirts and slacks?  Awkward, isn’t it?  A scenario you would wish to avoid.

Europeans have been found to have the most casual attitude when it comes to work clothes.  Only 27 percent of Europeans reported that they wore traditional business clothes to work (jackets and ties for men, dress suits for women).  People in Hungary might be the most casually dressed workers in the world.  Only 12 percent of Hungarians reported that they wore “business clothes” to work, while 46 percent said they thought clean and pressed shorts were appropriate office attire.  On the other hand, workers in India might be the best dressed, with nearly 60 percent of survey respondents reporting that they wore business clothes to work.

Many workers worldwide no longer equate dressing well for work with what they consider success.  Approximately 40 percent reported that they wore casual business clothes to work.  However the same percentage of respondents said that people who wore such casual attire in the office would probably not be hired or promoted into senior management positions.  Additionally, 66 percent of respondents believed that senior managers should always appear better dressed than their employees.

For many then, conservative dress is never out of style.  In some circles (usually non high tech) casual dress may even give the “perception” of a lack of professionalism.

Workers in India held the harshest views for people who wear casual clothes to work.  Nearly 60 percent of Indians described casual business dressers as “slackers”, and 64 percent said that such casual dressers would never reach senior management positions.

For a contrary viewpoint, in Central Florida business casual is often the proper attire, across the organizational hierarchy.  In fact, wearing a tie would cause co-workers to stop and stare.

When it comes to bosses wearing casual clothes in the office, Swedes appear to have the most lenient attitudes.  Only 27 percent of Swedish respondents reported that they believe that wearing casual clothes on a regular basis would hinder workers from attaining high-level jobs.

Generally speaking though, the higher up you are in the company’s structure, the greater the reluctance to “dress down.”  One Business Unit Head acquaintance in Europe suffered through so many shocked looks when he once wore jeans to work, that he never repeated the experience.

So what’s the takeaway from the survey data for the business traveler?  When in doubt, ask ahead.  Don’t assume.  Getting the lay of the land in advance is always smart thinking.  As a rule of thumb though, remember that you can always dress down by taking off the tie or power jacket, but the opposite won’t work nearly as well.

It’s that time again.  The end of the business year, when managers everywhere turn their thoughts to – bonuses!  The calculators are out and every eligible soul from Marketing to Manufacturing to Sales, IT, HR and the Executive Suite tries to figure out how fat that check will be.  For many, it’s the gift receiving season.

And thus the same bad script repeats itself for the annual management bonus process, year upon year upon year:  objectives created at the last minute, embellished accomplishments dutifully recorded, problems and shortcomings diminished or forgotten and assessment forms looked at with disdain – as in, how do I fill out this thing to pump up my results?

More than the mechanics are at fault

Oh yes, the process is flawed, yet the foxes are in charge of the chicken coup – and they offer little hope for reform.  Why?  For those in charge the process works, and self-interest pays its own rewards.  Picture Santa Claus with a very large bag of goodies.

Cynical?  You bet.  For many of us in the trenches true pay for performance is an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is.  Sad to say, but senior management is often the worst offender.  I’ve seen senior executives manipulate, excuse me, adjust financial results to ensure that their own bonus awards wouldn’t be reduced.  Senior staff deserves competitive bonus awards, don’t they?  How can you not reward your senior leadership for their efforts?  And so once again entitlement trumps performance.

Studies suggest that the I-deserve-it mentality has weakened through this recession.  However I’m convinced that it’s still alive and well wherever rewards are viewed as payment due for time served, not for effort and results.

But we go on hoping, one company and one client at a time, trying to persuade leadership that it’s primarily good performance that should provide rewards; that tenure isn’t a compensable factor, that incentive payments should be deserved, not simply an automatic gift of delayed compensation.  Lower level employees are expected to earn their rewards; shouldn’t the same case be made for management?

End of year expectation

Have you ever told an executive that their annual bonus might be reduced because of either corporate or – dare I suggest individual performance didn’t meet expectations?  They would look aghast at the possibility.  I’ve taken calls from spouses asking when the checks would be cut (something or other was going on sale) – and then grew upset when told of the review process and that the Board of Directors has to approve.  The common attitude was, times up! – where’s the money?

Will the situation be any different for the bonus cycle in 2011?  I hope so, but bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans you need to stand up and speak up.  The process is starting now, so it’s not too late to have an impact, to instill a management pay-for-performance philosophy in your company – even if it’s only one step at a time.

• Performance appraisal shouldn’t be an activity list (I was very busy), but a focused statement of achievement against quantifiable and measurable objectives

• Let the assessment tell you the rating, not the other way around (how do I fill out this form to give a 4 rating?)

• Confirm that the language on the assessment form corresponds to the performance rating.  Oh yes, you have to check.

• Assessment forms should be required before an incentive payment is made – negating an old procrastination trick (oh, just process the check.  I’ll get the form to you . . . tomorrow or the next day)

• For the 2011 cycle, start by having objectives established early in the year, not in an after-the-fact rush at the end

Granted, you’ll need more than a steely look and a waving flashlight to stop a speeding freight train, so you should educate management about these ineffective and wasteful practices before the cycle starts.  Because afterward may be too late; discipline as a learning tool is best used to prevent problems, not when Santa is already reaching into his bag of checks.

It’s Christmas, the season of light, cheer and new beginnings, so let’s be optimistic.  Prove me wrong and get it right.  Or at least start.

The other day I was trimming the landscape of several plants that had outgrown their space (in Florida everything grows, all year long) when my wife asked me, why are you cutting down that plant?  It looks nice and the blossoms have a sweet scent.  Can’t we keep it?

It was a ginger plant, and true enough it was pretty and did smell nice – but it had also over grown the area where we had planted it.  Slowly spreading outward it was crowding other plants and starting to transform our neatly designed landscape into an overgrown jungle.   The plant was no longer providing the value, the benefits we had expected when first planted.  It was time to cut back or cut out.

Which got me thinking; how hard is it for managers to tell someone “it’s time to go”?  Sometimes employees stay too long at a particular job, year after year racking up higher pay levels while not really delivering more performance than they did the previous year.  They end up performing the same activities, over and over again – for more and more compensation.

Reliable workers?  Good workers?  Yes.  Expensive?  Yes to that, too.  Is their value to you increasing?  Not really.

After awhile you will start to realize, that while reliable Bob is doing a fine job, someone else can do that same job for a lot less money.  So what do you do?

Let it slide?

Think about it.  If a loaf of bread is commonly priced at $2.00, what would make you comfortable with paying $3.00?  Or even $2.50?  For the same product, the same taste, the same benefit?  Would your extra money be well spent?  Or would you start searching the store shelves for another $2.00 loaf?

Creating the problem

How did you ever get into this fix, having a few satisfactory but overpriced employees on your staff?  Why do they seem to be stuck in place?

Often times the answer is simple and straightforward; because they are comfortable, to the point where they see no reason to rock their boat.

• They like it here; they like the job, their co-workers, the work environment.  They even like the commute.

• They know everything about the job(s), as well as the company, and so the stress level is not a concern and they feel able to focus less effort to do the job

• They are comfortable doing what they do, and have little motivation to do more.  They are not driven to break out of their mold.  They don’t see themselves as being in a rut.

• The pay is good, or at least ok, so why leave and start fresh somewhere else?  Where they would have to prove themselves all over again?  Job search is a real bother, stressful too, and should be avoided until absolutely necessary.

So now we see why some employees stick around, content to remain on that treadmill.  But why do their managers allow this problem to develop in the first place?

It’s a management issue

Why don’t managers cut off these employees?  Or promote them up and out?  Because many times taking such actions is not perceived as being in the best interest of the manager.

• The cost and headache of replacement; the time, disruption, the added stress

• More work would be created for the manager, filling in for planned projects; their time lines would be negatively impacted

• The perceived damage to the manager’s reputation (employees have quit you), and leadership is watching

What’s a manager to do then?  No one would tell you that corrective action would be easy.  Moving someone along when there isn’t a performance problem is a tough decision to make and to implement.  Though sometimes it’s the right thing to do, both for the company and the employee.

• Encourage employees to learn and grow within the company – preparing themselves for better positions

• Be open to losing the employee to another department that is better able to utilize their capabilities.  Holding on too long doesn’t help either party.

• Expect and demand continued and improved contributions from all your employees

• Plan to move them up or move them out as part of managing an evolving staff

Ask yourself, where is the balance of contribution provided (performance) versus value paid out (compensation)?  When the balance tips too far in either direction, it’s time for action.  When an employee recognizes that there is more contribution on their part than value received, they look for the exit.  However, when the employer sees that there is more value provided than growth of performance contribution, it’s time to move such employees along.

I’m just saying, the day will come – for some.  When it does, will you recognize that it’s time to pull the plug?

Compensation programs, once they are developed and implemented, tend to take on a life of their own, and like a perpetual motion machine may keep on ticking, doing what they do, perhaps long past their intended design and usefulness.

Perhaps that’s where the phrase, “we’ve always done it that way” originated.

So it’s worth checking in every now and then.  When is the last time that you reviewed the effectiveness of your management incentive plan?  To see whether the intent of the plan was still being delivered?  Is it still performing to design (risk – performance – reward) specifications, part of your pay-for-performance strategy, or is it simply an administrative reward processing machine?

What does it take to change behavior?

For example, is one of the goals of your incentive program to change behavior?  To encourage and reward performance that is above and beyond normal expectations?  That’s why it’s called incentive, right?  Or else why pay for what would have happened anyway?

That would be what is called “delayed compensation”, as in “it’s been 12 months, where’s my check?”  Such a scenario is definitely not pay-for-performance – but happens all too often, just the same.  With luck your own program focuses on a win-win strategy; that of first achieving company goals, which in turn generates a reward for the employee.

Ok, so you want to change behavior.  You want to light a fire under participants and get them motivated to achieve their quantifiable, measureable objectives.  So how much target incentive would it take to have an employee focus their attention for the entire performance year on achieving their objectives?

If you said 5%, or any number lower than 10%, then I’d suggest you save your money and don’t bother.  Because not enough money is in play to gain an employee’s attention and hold it for an entire year.  Behavior modification will not take hold and root.  What you’ll get instead is the same performance you would have gained without an incentive, only your compensation costs would have risen – with little or no ROI.

Now I’ve been around the block a couple of times, and I know that for employees clamoring to be made incentive-eligible, a measely 5% target incentive is an attraction, especially for managers trying to do whatever it takes for their employees.  However it would be incumbent on the requesting manager to explain upward what the employer would receive for that increased cost of labor.  Because if you can’t show the ROI for the cost increase, your proposal would face a steep uphill battle.

Take a chance, anyone?

There is another way to make the sale, of course, but it’s a strategy rarely taken.   You could lower base salaries a bit (don’t need a 1:1) for those newly eligible for an incentive program, and counter-balance that hit with the opportunity to earn a great more through the incentive scheme.  Most of the time employees would come out ahead by the end of the year (sometimes a great deal), but there is a risk.

And therein lies the rub.  Many employees so affected would raise such a howl of outraged indignation that your ears would bleed.  When pay-at-risk is a reality, it often doesn’t go over well in certain quarters.  The demand instead would be for additive compensation, not true variable pay.

Have a care to avoid that trap.

So as FY10 nears a close and plans are being finalized for FY11, have a look-see at your management incentive plans.   Do they really incent?  Do they provide rewards for achieving company objectives?  And while you’re at it, check whether those targeted rewards are indeed a motivating tool, or are you planning to give away money for the same performance you could have gained for free?

Do you pay out incentive awards to your management staff on the basis of their performance, or simply because the year is up and it’s time to cut checks?

Silly question?  I wish it was.  But think about what goes on behind the scenes during your year-end bonus processing cycle.

Perhaps your company’s variable pay plan, that which you may have touted across hither and yon as your “pay at risk” program, operates more like a delayed compensation scheme when the facts are known.  Does the message that your pay practices deliver to employees sound like, “not to worry, you’ll get it; you just have to wait a bit?”  Are your eligible employees concerned that their annual incentive payment is money at-risk, that they could actually take a hit at year-end if they and the company haven’t performed well?  Or are they fairly certain that they will receive at least an on-target payment?

Design vs. practice

There probably aren’t too many plan designs out there these days that don’t make a strong case for early-on objective setting, periodic mid-course correction meetings and a thorough year-end assessment of quantifiable results.  But does the implementation practice follow this path?  There lies the rub.

Give yourself a quick quiz.  Ask yourself, how many of your incentive-eligible employees routinely receive their target bonus amount – or even higher?  Has that been your standard practice, that almost everybody wins?  Then ask, how do the average performance ratings compare with the overall business rating?  Is there a strong correlation?  Do your overall bonus payments fluctuate to the same degree between good and bad business cycles?

Note: it would be a good idea to make sure that this information is captured as part of your compensation metrics.

Every year management incentive plans pay out substantial amounts in total reward payments, but do you know whether you’re gaining some real ROI for your money, or is your plan only going through administrative motions – like the process is on automatic pilot?

The administrators rule!

By the time the performance year nears its close and the incentive assessment and payment cycle starts almost no one is looking at these questions.  That ship has sailed.  Attention would now be focused on the processing, the administrative busy work of getting the checks out on time. With all the paperwork passing through multiple hands, the quality control effort usually relegates itself to proper completion and signature of forms, not on whether individual performance has warranted the payments.

I remember one business unit President scanning the management incentive appraisal forms with a dark frown, then saying, “Just tell me how to get Bob an above average bonus”.  Process went out the window.

When the clock is ticking and Finance is clamoring for the numbers there is little time left for self-reflection about the effectiveness of your reward programs.  Some might even shrug off your concerns with a “we have the money budgeted,” as if somehow that solves the design vs. practice dilemma.

It may already be too late for this year.  But before you start the next incentive year cycle, before your administrative processes take on a life of their own, have a look-see at whether your variable pay plans are really variable; whether they’re really working for you.

There’s a lot of money at stake.

I used to think that, of all the compensation schemes out there, the most detailed, the most carefully crafted, the most committed to memory were for the sales force.  Sales employees always seemed to know everything about their incentive plan; the exact figures for what they sold, where they stood year-to-date and exactly what their incentive check should show.

Like the stereotypical jail-house lawyer they could detail to management the inner workings of their incentive plan – and often did.  Nothing got past them.

That may still be true in your company, but my certainty regarding common practice has been shaken.  With increasing frequency I have found myself immersed in a client’s troubled sales compensation plan designs, struggling to salvage the incentive schemes of companies whose reward train had plunged off the track.

What happened?  Studies have shown that it is often not the design but the communication of the sales comp design that is often to blame.  Even quality programs find it difficult to overcome the damage that can be caused through errors in explanation.

Errors?  How can flubbing the message sink a sales incentive plan?

Easy.  Plan effectiveness is weakened right out of the gate when a company fails to properly inform their sales force as to what is expected of them, and how they will be rewarded.

The following is a list of critical elements to be included in every sales plan document.  Are they in yours?  It’s basic stuff, but all too often several are left off.  Others can be clear as mud.

• Show the money: highlight the target incentive figure and you will get their attention.  The more at risk the greater likelihood behavior will change.

• Be clear about objectives: if you want to steer someone’s performance, give them a sense of direction.  The sooner the employee knows what you want them to do, the sooner they will start to focus.

• Clarify thresholds and caps: two common questions are, is there a cap, and at what point do payments kick in?

• Administration rules: not exciting but necessary to help employees understand the plan and how it works.  Clarity dispels confusion.

• How much, and for what?: lay out how payments progress as performance increases, whether you use percentages, commission rates or a combination

• Estimate earnings at various performance levels: examples always drive the message that better performance delivers greater rewards

• Limit the key objectives: focus employee efforts to maximize performance.  Provide no more than four – with nothing weighted less than 10%

• Who ya gonna call?: provide the contact information of those to be contacted with questions or issues.  Encourage questions to make the process transparent.

• The appeal process: spell out the method of handling payment calculation issues.  Questions and even disruptive challenges are to be expected, but don’t make employees search for remedies.  Be upfront about how to deal with problems.

Of course, your plan should be distributed before the start of the performance year.  Too many plans are still being “finalized” during the 1st quarter.

Directing Traffic

I’ve always considered sales compensation schemes as intricately drawn out affairs; that when you shout “go!” at the start of the year the sales force rushes out in a coordinated and well orchestrated campaign of selling activities and achieving results.  What we often get instead is a mad dash of individual egos, each frantically pursuing the almighty dollar – with little consideration as to what impact their activities will have on the business.

Left to their own devises some sales employees could drive the business right off the cliff and into deep financial problems – if the pay is good.

The wrong kind of selling activity can also pump up revenue without a corresponding increase in margin. Generating revenue without profit is just being busy, and that shouldn’t be your singular goal.

What do you face if you fail to provide proper communications within your plan document?

• Confusion: what exactly am I expected to do?  How am I to be rewarded?  These are questions you don’t want your sales force to be asking.

• Dissatisfaction: an employee unhappy with their incentive plan, no matter the reason, has tamped down their degree of enthusiasm and engagement.

• Unwanted activity: chasing sales that don’t maximize margins or fail to push new product / service lines

• Unrealized expectations: “but I thought my check would be for X?”, or
  “I didn’t know you wanted me to focus on that”

• Missed opportunities: if your marketing focus goes in one direction while your sales force heads for another, the achievement of critical results (i.e., revenue, new customers, market share, profits, etc.) may be left in limbo.

• Reduced engagement: ineffective communications will hinder the sales force effort, which in turn will weaken business results.  That combination will in turn reduce employee engagement – resulting in higher levels of separations.

One last caveat: if you know what is considered “success’ for the company (objectives attained), and you aim your rewards toward the achievement of those objectives, then you can afford to provide healthy rewards to those who perform.

A company’s sales incentive plan is like the Pied Piper from the childhood fable; it plays a tune and the sales force follows.  Wherever the Pied Piper leads, the sales force will go – whether it be down the straight and narrow toward a bright tomorrow, or into the rough, down the hillside and over the cliff.  Because the melody being played is about money, money, money, and when that tune catches the ear those chasing behind will follow it anywhere.

I was once brought in by a client whose sales incentive plan rewarded the sale of products that generated an actual loss on each sale.  The sales reps got paid though – even though their actions were detrimental to the company.   Bad behavior was rewarded, and therefore it was repeated – over and over again.

Which begs the question, why would a tactical plan for incenting sales employees encourage (reward) actions that don’t support the company’s own self-interest?  Isn’t anyone watching the store?

What behavior do your own plan(s) reward?  Do you know?

It’s up to those who design the sales incentive plans to carefully pick the right pathway.  Because as long as the money is flowing the sales rep isn’t going to raise a red flag and ask, “are you sure you want us to do this?”  Ain’t gonna happen, as most incentive plans are not self-correcting.  The lemmings will race over the cliff as long as a dollar bill is waved in front of them.

Have you looked at the details of your own plan(s) lately?  Have they laid down a plan of action that rewards the kind of behavior (sales volume, revenue, margin, market share, etc.) that supports the company’s objectives?   That drives the sort of behavior that helps to deliver business success?  Do you expect a Return on Investment (ROI) for the incentive money you’ve targeted for payment?

While there might be more variations in sales incentive schemes than snowflakes in the winter sky, certain fundamental design elements do apply as prerequisites for success.

• First and foremost the company has to succeed.  Only sales objectives whose achievement advances the company’s operations (bottom line) should be used to incent employees.  Are you paying for busy work?

• Spell out what you want the sales force to achieve.   Can employees tell you what their specific objectives are?

• Provide enough reward to change behavior.  Like any incentive, if you want to encourage a certain behavior you need a carrot out in front.  Are you paying for what would have happened anyway?

• Make sure you can measure  performance against quantifiable milestones.  Are payments made on the basis of discretionary judgment?

Yes, there are other important criteria for sales plan success, but unless you start with a clear map that details what you want your sales force to focus their efforts on, you run the risk of missing the mark.  That can be an expensive mistake.  You will need a team effort, much better than the disconnected activities of a group of individually focused entrepreneurs.

The success (and continued use) of a sales incentive plan should be measured by the success of the business, not by how busy employees are, or even how much revenue is generated.  Unless activities can be measured and achieved, and support the company’s business plan, you’re better off with a straight base salary plan (horrors!).  Because providing incentive rewards that don’t advantage the company is often paying for busy work.

So ask yourself, does your sales incentive plan encourage the right sort of behavior, activities that will drive business success?  Are you paying for the results you need?  Are you getting your money’s worth?

It might be time to check.

Do you remember this line from the movie “A Few Good Men”?   Jack Nicholson was telling Tom Cruise that average folk couldn’t deal with the harsher facts of life, so as a result higher ups would tell them what they wanted to hear.  They would offer excuses, verbal hedges that sidestepped reality and offered the illusion of comfort.

Today we are in the midst of a severe economic recession, a situation that is causing job stress, concern for the future and perhaps more than a few sleepless nights.  In these circumstances company management can choose to deal from either the top or the bottom of the deck with their internal communications, as they face the question of whether employees can handle the truth.

The issues raised could be pending layoffs, reduced or frozen pay increases, hiring freezes, reorganizations or other such “bad news”.

Management messaging can either be straightforward regarding current events, why it was happening and how circumstances would affect employees, or they could toss out a series of artful communication hedges (excuses).  In other words, employees could be fed corporate-speak.

By corporate-speak I mean a headquarters-generated sleight-of-hand communications effort, typically prepared by smooth-tongued professional writers vs. subject matter experts.  The prose, approved by corporate legal to insure that no liability is stated or implied, minimizes the negative and accentuates the positive.  The intent is to say little of substance, while at the same time making a self-congratulatory production of their communication efforts.

Content is usually a combination of feel-good phraseology intended to instill a sense of confidence that, whatever the problem, management a) is doing the best they can, b) is not at fault, c) has the interests of the employees firmly in mind, and d) will be providing more details soon.

When these officious corporate pronouncements inevitably provide little in the way of satisfactory answers, employees turn to their managers to get straight information.  However, when the going gets rough (challenging, complex, contentious), many managers will waffle, dribble their thoughts, obfuscate and make their own excuses.  They may even point a finger in the direction of HR.  Poorly trained managers have difficulty facing issues important to employees without trying to pass the buck.  Employees want to know why?, what next? and what about me?, but managers are rarely equipped to offer an effective response.

When the straight story is not forthcoming, employees will tend to read between the lines and form their own perceptions of the company message, and that perception is less reliable than the grapevine for spreading accurate information.  It is also more skeptical.

What employees “hear” can usually be generalized by the following attitudes:

• “Where are they going to go?”: employees are trapped in their jobs, they have no choice but to remain, because other jobs will be hard to find.  Management has implied, “We don’t need to do anything for them.”

• “Everyone else is cutting back, so we have to as well”: this trite phrase only gets dragged out when the circumstances being described save the company money.  Has the “everyone else” phrase ever been used to support giving something to employees?

• “In anticipation of difficult economic times ahead we are forced to / reluctantly / have no choice but . . . “:  this is a pre-emptive strike while the sun is still shining.  It is a particularly onerous practice if rewards for past performance are cut, and is often viewed by those on the receiving end as a breach of trust.

• “We employ average workers, so they should be satisfied . . .”: perhaps an after-the-fact rationalization, but sometimes your senior leadership feels that most employees are easily replaced, like a commodity.

Not surprising, the reaction to such doomsday communication efforts is always negative, planting seeds in your workforce for a bitter harvest of lowered morale and increasing disengagement.

• The ineffective message lacks credibility with an increasingly skeptical audience, as does the messenger and the organization behind it

• Employee listening (and attention) stops as insincerity is recognized, like shutting off the TV, so the communication effort is wasted

• Engagement and performance levels drop as trust, confidence and loyalty erode and employees start to ask themselves, “why bother?”

• The supposition gains traction that the company is lying, holding back or not telling the whole story.  It is hard to see the glass as half-full with this reaction.

On the other hand, when the message is honest, straightforward and without guile the opposite reaction occurs:

• Organizational credibility is strengthened

• Company loyalty is fostered

• Engagement levels and management support are strengthened

The implication is clear:  employees can handle the truth, rightly expect same from their employer, and will not take kindly to bland corporate-speak.   So do not get caught making excuses; it didn’t work when you tried it with your mother, and it won’t work with your employees either.