Variable incentive plans a motivation and retention tool

A Motivation and Retention Tool

Variable Incentive Plans

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An Introduction

Variable incentives did not work very well since most employees wanted the security of a high base pay, and meeting targets was largely unpredictable.

Organizations want to curtail their fixed costs, hence salaries may not increase dramatically and immediately, but variable incentive plans will help retain high-

performers and encourage achievement.

Most of us

On hearing the words “Variable Incentives”

Reality

Sales Department

Applicable to all job roles in the Organization, can be used to motivate and retain employees

Who is Responsible for Attrition?

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Typically,

each employee may get 5 – 10 different goals which

determine their variable incentive plan for the year…

or in some cases, even a month, quarter or half-an-year.

Senior employees and those in management positions

would have significantly higher goals that may be linked

with the overall performance of the company or with

their respective departments

For middle management positions, the targets would be

based more on team performance and for junior

employees, the variable incentives will focus on

individual achievements


Identifying High Performers

By giving multiple targets to each employee, there is a greater opportunity for earning at least some part of the Variable Incentives.

This can act as a strong performance motivator and retention tool.

It also enables identification of high performers who become

eligible to enter the succession pipelines for key positions

Types of Variable Incentives


Variable incentives can be broken down into multiple categories, some of which are:

Performance Based Targets

Individual Targets

Evaluation and

Recognition

Time Based

Negative Indicators

o Can apply to employees of specific departments

o For instance, if there are

employees from 2 different product lines, each of them may have different revenue and profitability targets

o Can apply to all employees, though with

varying weights

(Revenues and Profitability)


Performance Based Targets

Each department in the company can have specific performance related goals, such as:

Company Top Line and Bottom Line

Departmental Goals

Individual Targets


These are largely based on individual achievements and would constitute 0 – 20% for senior level employees and 40 – 80% for junior employees.

Some individual targets may include:

Individual Sales Performance

Production Performance (such as number of pieces manufactured)

Project Renewals

Number of Persons Hired (for recruitment department)

Training Imparted (for training department)

and so on…


Evaluation and Recognition

Appraisal Score

Goal Sheet Achievement Score

Client Recognition(s)

Nomination for Awards

External Events Conducted

While appraisal and goal sheet achievement could be counted as individual targets, typically these are measured at a team level and we may see score

adjustments based on normalization, relative ranking etc.

Hence, these are under a separate category of evaluation and recognition. Some of the targets in this category are:

Time Based


Most companies want their employees to start work on time, take minimum leave, attend regularly and manage their time effectively.

This can be encouraged by adding the following parameters

to their incentive plans:

1

2

3

4

Billable Hours

On-Time Entry

Average Weekly Hours Worked

Training Hours Undertaken


Negative Indicators

To help avoid negative behavior, some companies include targets

which have a negative impact on the variable incentives.

Some of these could include:

Leave without pay

Late entry

Non-completion of assigned targets

Disciplinary incidents

Key Challenges in Implementation


Collect Data which can

help in Calculating

Achievements

Communicate the plans to

the Employees

Integrate Variable

Incentives Payout with the Payroll

Software in a Timely Manner

Calculate Variable

Incentives for a Large

Population of Employees

Communicate Payout to

Employees in a Transparent

Manner

Thank You

Copyright 2013 | Saigun Technologies Pvt. Ltd.

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Variable incentive plans a motivation and retention tool