Incentive Pay for Non-Exempts–OK if You Are Careful

Cherry and Green, both of whom are principals at HR consultant Hay Group, offer the table below to show how incentives fit into the total rewards picture. They offered their remarks at a recent webinar hosted by BLR/HR Hero.

Purpose of incentives

Cherry suggests that typically incentives should:

• Attract, retain, engage and motivate talent
• Change and direct employee behavior
• Reward top performers
• Control fixed compensation costs
• Self fund variable compensation costs
• Share the risks of the business with the one of the core stakeholder groups—the employees
• Enable employees to identify with and share in the success of the organization
• Send a message regarding company values

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Factors to Consider in Plan Design

In assessing the best plan design for your situation, consider the following enablers and barriers to variable pay:

• Business Focus: Extent to which the organization has a clear focus on consistent goals and directions.
• Team Dependence: Degree to which accomplishments depend on integrated efforts among employees and departments.
• Empowerment: Extent to which employees are encouraged to take risks and suggest improvements.
• Willingness/Ability to Change: Degree to which employees trust supervision and are motivated to get the job done.
• HR Programs: Effectiveness of measuring job performance and the perceived equity of the reward systems. You have to be able to measure and track performance.

Cherry offers a table to emphasize the factors that help make an incentive program successful:

Watch out for those uncontrollable factors, says Green. For example, in wineries, you might be tempted to measure workers on the quantity of grapes, but that’s a factor of weather. So it’s better to measure, production or waste or some other factor more within control of the workers.

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Six Types of Incentive Plans

Green outlines six approaches to incentive design for non-exempt employees. The table below shows advantages and disadvantages for each approach.

In tomorrow’s Advisor, the rest of the incentive types, plus great news—your job descriptions are updated, ADA-compliant, and ready to go with BLR’s SmartJobs.