Many people — mostly consultants, I know — make incentive-based compensation planning complex and overly difficult to create, implement, and manage. It simply does not need to be that way…
Understanding incentive compensation is simple, and is largely human nature. Just realize the following:
1. That which is rewarded is repeated,
2. You don’t get what you want, hope for, manage to, or request — you get what you pay for (as a tenet of compensation, not necessarily a life philosophy), and
3. Simplicity wins.
There are certainly exceptions to this, but they are just that… exceptions. Don’t be misled by one or two instances of simplicity, for example, not working. In the long run, across the board, these tenets hold true.
Well crafted incentive schemes will generally work best when — viewing from the employee’s angle — we can show that:
1. Working harder (bigger, better, stronger, faster) will improve my job performance,
2. My improved performance will create rewards, perhaps an increase in salary or valued benefits, and
3. I value these rewards.
(oft-paraphrased from Victor Vroom, though not sure his was original)
Keep it simple, keep the end in mind, and stay focused on what you are really trying to accomplish.