motivational gap analysis

Feedback on the effectiveness of variable pay plans remains mixed.

For example:

• at the senior management level, demonstrable linkages between exceptional pay and exceptional shareholder returns remain rare
• incentive pay has been 'fingered' as one of the main culprits in various mis-selling and corporate governance scandals
• a recent study by the CIPD highlights that design flaws mean many schemes fail to engage employees and may even de-motivate them.

Some people have concluded from this that variable pay per se is ineffective. Our view is that until someone comes up with a better concept than money, variable pay plans will retain their allure. However, whether or not they drive business performance will be determined by the quality of application, design and implementation.

Employee motivation is a highly complex area. A pay plan that works well in one organisation may be entirely inappropriate in another. For this reason we always encourage companies to be as clear as possible at the outset about:

• the type of culture and approach to work that they want the pay plan to support, and
• existing employee attitudes towards pay and performance management.

A clear understanding of the organisational context in which the bonus plan will operate provides the best foundation for bonus plan design.

We undertake this work by sampling sections of the employee population through a combination of focus groups and e-based questionnaires.

Incentive pay does not obey universal scientific laws - everyone responds to pay in an individual way. To give a bonus plan the best chance of enhancing motivation, the following 'golden rules' should be followed:

• the reward on offer should be considered valuable by the recipient and must be 'visible' from the outset
• the tasks which must be completed to earn the reward must be clearly defined and recipients should have involvement in their definition
• recipients must perceive a strong association between task completion and earning rewards
• the task must not involve behaviours or outcomes that compromise a recipient's values; ideally, task completion & reward should enhance self-image
• recipients must trust the reward mechanism to pay out and must believe that the allocation of rewards amongst peers is governed by a fair, consistent & explainable process.

By understanding the organisational context and people's attitude to pay, we can develop solutions which will increase the motivational impact of reward.

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