If incentives aren’t aligned with your strategy, the likelihood of you reaching your objectives is pretty low. Be sure you clearly link your incentive plan to the strategic outcomes you’re trying to achieve.
People do what they get paid to do. If incentives aren’t aligned with your goals and strategic outcomes, you’re not going to get the results you want.
After you’ve defined the initiatives you want to pursue, laid out the priorities for the organization, and set goals, you have to link individual and team incentives to the successful completion of those activities. This may require changing compensation plans or offering bonuses contingent upon execution of strategic objectives.
I had one client that was trying to make a massive culture shift. They were moving from a mindset where it was great to drive sales to one where they wanted to improve margin.
Everyone’s incentive plan was tied to sales. The organization realized no matter how badly they wanted their sales reps to focus on selling more profitable business, they would never get there if they didn’t change the sales compensation plan. So they did.
They said “No longer will you get incentive only based on sales. We’re also going to measure the profitability of the products and contracts that you sell.”
Behavior changed pretty fast, and they achieved that strategic objective of expanding their margins.
Using Incentives to Drive the Right Behaviors
One organization I worked for had a bunch of field technicians. Those technicians were measured on their daily production. The incentive was based upon how much work the tech got done in an eight hour period.
Our organization had a strategic shift where we realized production matters, but we really needed to focus more on retention. We were losing too many customers. We knew the way our technicians interacted with customers drove whether a person stayed with us as a customer or not.
We realized we had to change the incentive plan. So, we layered on retention on top of technician production. We created an entirely new metric called “retention adjusted production.” The way that worked was a tech could do a great job and do a lot of production, but if they had really high attrition, their production score would get decreased. Their incentive went down too if they had too much attrition on their route.
Our techs changed their behavior. They were more positive in interacting with our customers. A lot of them actually increased their retention, and we achieved our strategic goals.
Involving Human Resources in Strategy
Sometimes incentive changes are short term. Others are going to be long term and require the involvement of Human Resources and the Compensation department. Those business partners need a seat at the table when you’re setting strategy, not after you’ve set it and finalized it. They need to know how the strategy is going to drive performance. Once they know that, they can advise you on the compensation changes you should make to get the performance you want. They’re able to tie your strategy to incentives clearly and directly.
I worked with one client where the Human Resources business partner is involved in all strategic planning efforts. She has a seat at the table. Her counsel is valued by the leadership team. When they’re setting strategy, she’s the one who flags compensation changes for them. She gets them to think about how the strategic priorities are going to affect the way people get paid. This is absolutely best practice.
If want your culture to really drive your strategy and make sure it gets executed, you have to make sure the incentives are aligned with that strategic plan.
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