Is Your Incentive Plan Strategy-Negative?09.10.2018
Do you design incentive plans to undermine your organization's business strategy? Probably not on purpose, but it happens and it usually happens at the hands of those with good intentions. A cautionary tale follows . . .
Not long ago, I stumbled upon a helpful set of shorthand for talking about reward plan effectiveness. Nothing profound by a long shot, but I have found it to be particularly useful in getting the attention of leaders.
In a "discovery" conversation with a leadership team, following a presentation of the company's strategy and most urgent business objectives, one of the executives was mapping out the principles and mechanics of their incentive plan on the whiteboard. We talked through an example of how the plan metrics present themselves to a typical employee and the kinds of day-to-day employee choices that the plan might drive as a result.
After a couple of questions to ensure I understood what I'd heard and seen, I said: "So the plan is strategy-negative." Every head in the room snapped my way.
On a different whiteboard, I wrote the following:
- Strategy-positive plan. To maximize their earnings under the plan, employees must do things that directly support company strategy.
- Strategy-neutral plan. To maximize their earnings under the plan, employees must do things that neither directly support nor are in conflict with company strategy.
- Strategy-negative plan. To maximize their earnings under the plan, employees must do things that are in conflict with company strategy.
That's right. The incentive plan actually drove behaviors and choices that, while seemingly positive on the surface, flew in the face of the company's declared direction and strategy. After additional discussion, this particular leadership team acknowledged the point, but also stated their belief that company culture and their management philosophy provided sufficient "counter-pressure" to offset this problem.
It's true that competing objectives are a fact of life in today's business world. Consequently, there are times and places where it is acceptable—even desirable—to have different "talent levers" working in opposition to one another in order to pull off a careful balancing act. But I still stick to the notion that, all things being equal, it's better to get as many oars pulling in the same direction as possible.
What happens when you map your incentive plan out against the company's most pressing priorities and business goals? Is it strategy-positive, strategy-neutral or strategy-negative?