HR Knowledge: Designing Incentives and Rewards - SHRM India


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Decisions about who to reward and how rewards are distributed are based on performance at various levels:
Individual employee.
Work teams.
Department, plant, strategic business unit.
Organization as a whole.

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HR Knowledge: Designing Incentives and Rewards - SHRM India

  1. 1. Designing Incentives and Rewards
  2. 2. In this presentation: <ul><li>We’ll examine the underlying concepts that distinguish effective incentives from ineffective ones. </li></ul><ul><li>We’ll look at how the goals and performances of individuals, teams/units/departments, and organizations might be more effectively linked. </li></ul>
  3. 3. What Do Incentives Incent and Rewards Reward?
  4. 4. Design Issues for Performance-Based Incentives and Rewards <ul><li>To be effective, incentive and reward systems must: </li></ul><ul><ul><li>Specify and measure performance. </li></ul></ul><ul><ul><li>Specify the level of aggregation for reward distribution in the organization’s hierarchy. </li></ul></ul><ul><ul><li>Specify the type of reward. </li></ul></ul><ul><ul><li>Gain employee acceptance. </li></ul></ul>
  5. 5. Specify and Measure Performance <ul><li>Employers should measure and reward what is important: </li></ul><ul><ul><li>Do not ignore performance aspects that are difficult to measure (e.g., conflict resolution, relationship-building). </li></ul></ul><ul><li>Results and behaviors are important: </li></ul><ul><ul><li>Examples of results: </li></ul></ul><ul><ul><ul><li>Profits, productivity, attendance, quality, sales. </li></ul></ul></ul><ul><ul><li>Examples of behavior: </li></ul></ul><ul><ul><ul><li>Returns customer calls within 24 hours. </li></ul></ul></ul><ul><ul><ul><li>Checks orders for correct shipping and billing information before shipping package. </li></ul></ul></ul><ul><li>Behaviors and results must be under workers’ control. </li></ul>
  6. 6. Specify and Measure Performance, cont’d. <ul><li>Decide whether the focus is on short-term or long-term objectives. </li></ul><ul><ul><li>It is a difficult balancing act to ensure that long-term performance and goals are not sacrificed for short-term results. </li></ul></ul><ul><ul><li>For example: </li></ul></ul><ul><ul><ul><li>Focusing on the short-term stock price for a company while neglecting crucial long-term investments in research and development. </li></ul></ul></ul><ul><ul><ul><li>Downsizing to reduce short-term costs while neglecting long-term skills and knowledge development. </li></ul></ul></ul>
  7. 7. Specify the Level of Aggregation for Reward Distribution in the Organization’s Hierarchy <ul><li>Decisions about who to reward and how rewards are distributed are based on performance at various levels: </li></ul><ul><ul><li>Individual employee. </li></ul></ul><ul><ul><li>Work teams. </li></ul></ul><ul><ul><li>Department, plant, strategic business unit. </li></ul></ul><ul><ul><li>Organization as a whole. </li></ul></ul>
  8. 8. Levels of Aggregation for Reward Distribution, cont’d.
  9. 9. Specify the Type of Reward <ul><li>To be effective, the reward: </li></ul><ul><li>Must be valued by employees (not necessarily financial!). </li></ul><ul><li>Must be clearly linked to expected behaviors or results. </li></ul><ul><li>For financial rewards, proportion of at-risk pay generally increases as employees move up the organization. </li></ul><ul><li>Cultures vary in the acceptability of at-risk pay. </li></ul>
  10. 10. Gain Employee Acceptance <ul><li>The plan must be clearly communicated. </li></ul><ul><li>Employees must believe they are being treated fairly. </li></ul><ul><li>The plan must be easily understood and incentives easy to calculate. </li></ul><ul><li>Employees should have input into establishing and administering the plan. </li></ul><ul><li>When possible, rewards should be given soon after the desired performance is achieved. </li></ul>
  11. 11. Gain Employee Acceptance, cont’d. <ul><li>Employees must have an avenue of appeal if they believe they are treated unfairly. </li></ul><ul><li>Employees must believe they can trust the organization to be confident that the effort-performance-reward link will really materialize. </li></ul>
  12. 12. Design Challenges for Performance-Based Team Incentives <ul><li>Aligning team performance measures with individual performance measures. </li></ul><ul><li>Aligning team performance measures with organizational performance measures. </li></ul><ul><li>Ensuring workload is equitably distributed. </li></ul><ul><li>Coordinating team incentives and incentives for people not in teams. </li></ul><ul><li>Determining how incentives will be allocated among core and noncore team members. </li></ul>
  13. 13. Advantages of Team Incentives <ul><li>Peer pressure reduces counterproductive behavior (e.g., reduces “social loafing”). </li></ul><ul><li>Group rewards, such as praise and camaraderie, increase reward value. </li></ul><ul><li>High performers act as role models for marginal performers. </li></ul>
  14. 14. Lessons Learned… <ul><li>Individuals vary in what motivates them, so incentives and rewards must also be varied (one size does not fit all). </li></ul><ul><li>Organizations frequently reward the very behaviors and results they are trying to avoid. </li></ul><ul><li>Incentives and rewards must be aligned within and among individuals, teams/units and the organization as a whole to be most effective. </li></ul>
  15. 15. Thank You! For more on Indian HR industry, click here Resource made available by SHRM US