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AnalyticsIncentive Compensation ManagementSalary Planning and Merit IncreasesSales Performance Management

Why and how incentive compensation plans work

By April 24, 2013January 16th, 2023No Comments

Incentive plans are a well-established part of the American workplace. In recent years, however, concerns over spending extra company money during tough times have arisen, resulting in the elimination of some incentive programs. According to Simple Studies, however, merit increases and bonuses should not be neglected, as they can help motivate employees and create a collaborative work environment. Performance assessment The first step in setting up an incentive compensation management plan is performance assessment. In order to evaluate employees and the distribution of company funds as bonuses or commissions, companies must identify a method by which to assess job performance. This can be complicated, and many companies have begun using incentive compensation software to make the process far less stressful. Companies can evaluate performance by quantifying financial achievements such as revenue increases, net income and shareholder return, as well as through less easily identifiable targets such as customer satisfaction and improving company reputation. Designing an incentive compensation plan According to American Express website Open Forum, the difference between successful compensation programs and those that come up short is most often a plan design. Some companies may benefit from utilizing sales analytics to promote individual performance and reward employees with commissions – this is a traditional plan that has been used for decades. A new and more group-centered approach may be the wave of the future, however, in which entire departments or offices are rewarded. By rewarding groups of people rather than individuals, there is less room for dissent and negative competition, as this method eliminates the concept of winning and losing on an individual level. Further consideration should be given to the benefits employees will enjoy under the new plan. While developing an incentivized program, management should consider award size, frequency of merit increases or bonuses, an initial trial period for the new plan, and employee eligibility. Encouraging all levels of improvement Setting sky-high goals for employees can backfire easily – if workers do not meet a lofty goal, they may experience a sense of disappointment and resulting resentment toward superiors who set them up for failure. When shooting for significant improvements across the board, “rewarding the try” is a valuable approach to take. With this method, employers do not set up a zero-sum commission plan. Rather, they make efforts to tangibly recognize improvements on all levels. If a group was given a goal of raising department revenues by 10 percent, but only manages to improve by 8 percent taking away all measures of recognition will not serve the company well or encourage further productivity. More companies are utilizing scaled incentive compensation plans, in which reduced commissions are offered in order to encourage improvements on all levels. Start small Implementing a new design plan can be exciting for employees and management alike, but making broad sweeping changes to a company compensation plan in one fell swoop is risky and has the potential to backfire. Implementing one aspect of a plan at a time is more effective and allows for management to monitor the success of the program while maintaining some of its previous methods. Another reason to start small is that, regardless of the overarching benefits of a new merit-based plan, some employees will initially be unhappy and will resist the plan. If a compensation plan is already in place, there are undoubtedly individuals in the office who are benefiting from the plan already in place. Slowly integrating new and exciting changes will leave less room for distress and resistance as employees can see the positive effects of the next plan.

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Ballast Point Ventures

Ballast Point Ventures is a later-stage venture capital fund established to provide expansion capital for rapidly growing, privately owned companies in diverse industries, with a particular emphasis on companies located in Florida, the Southeast, and Texas. The BPV partners have more than 70 years of combined experience investing in and building high-growth companies in a number of industries, including healthcare, business services, communications, technology, financial services, and consumer goods. BPV has $200 million under management and seeks to make equity investments ranging from $3 million to $10 million.

Harbert Management Corporation

Harbert Management Corporation seeks to generate superior returns for their investors by identifying and investing in the most promising early growth stage companies in the Southeastern U.S. HMC seeks to capitalize on what it believes are compelling regional dynamics, such as a strong and fast-growing economy, significant research and development activities, and an established entrepreneurial community. The HMC team combines substantial investment, advisory, and operating experience with capital and networking contacts to support great entrepreneurial teams in successfully executing their growth plans. With offices in Birmingham, Alabama; Richmond, Virginia; and Gainesville, Florida, it’s well positioned to partner with entrepreneurs throughout the Southeast.

KBH Ventures

KBH Ventures was an early investor in Iconixx Software. KBH's investment philosophy plays a significant role in the firm's successful track record. KBH believes in running businesses to be cashflow positive and profitable every month. Startups and companies in a startup mode, such as one that has been purchased in distress, are expected to generate revenue within the first six months and reach profitability within the first 12 to 18 months. KBH also only invests in or acquires companies that are in the startup phase or have less than $20 million in revenues. KBH targets technology companies that offer business-to-business services.

S3 Ventures

S3 Ventures is an early expansion and growth stage venture firm with $200 million under management. It’s focused on information technology solutions that solve large business problems. S3 also invests in medical devices that improve the human condition. S3 invests in category-defining opportunities. It partners with the team and help focus methodically on what it takes to build a successful company. S3 today helps talented entrepreneurs take their technology and market knowledge and form valuable businesses in a repeatable fashion. Investment sizes start at several million or more for Series A, B, and C financing.