PEOPLE SMARTS: Incentive Compensation

Most landscape companies want to manage their compensation programs more effectively and develop incentive plans that reward solid performers. These firms have figured out that sharing financial success with employees is a wise practice. They know that, if executed correctly, these plans help people become more interested in their company’s financial results.
 
However, a poorly designed, communicated or implemented incentive plan is worse than having no plan at all. For example, some companies opt for a totally discretionary incentive plan. If the company is doing well and the owner is feeling generous, he or she distributes a specified amount of money to certain employees. The owners  feel good because it is an opportunity to share some of the company’s financial success with the employees who believe they have contributed to it.
 
However, the employees, while happy to receive the money, often wonder how the amount was determined and what they did to earn it. Sometimes this lack of connection between one’s contribution and the level of reward one receives takes a bad turn. “Gee, how did the owner decide on what my share of the incentive should be? Maybe, it should have been a little more.”
 
Suddenly, the owner’s best intentions have been misinterpreted. When this occurs, many owners regret their actions and swear this will be the last time they do anything like this for their employees. In short, everyone loses and it doesn’t have to be this way.
 
Discretionary incentive plans are fine, but they have limitations. The biggest drawback is there are no performance standards against which employees can track their progress and they have no way of knowing how they are doing.
 
Our philosophy for incentive plans is straightforward: Get the biggest bang for your buck out of your plan and take sufficient time to think through one of the toughest plan design questions around; “What do I want this plan to help me achieve?”
 
In addition to this philosophy, there are some guidelines to consider before initiating an incentive plan at your landscape company.

• Incentive plans should be driven by clearly defined and measurable results, not activities.
• Results should be linked to the level of  success the company hopes to achieve.
• Thought should be given to linking the performance of the participants in the plan in such a way that they must function as a team if they are to achieve the highest possible level of payouts the plan offers. This prevents one department from succeeding at the expense of another department or functional area.
• Companies considering incentive plans must have accurate financial information upon which results are calculated.
• Regular meetings with participants should be conducted to share information that helps them track their performance against the results they hope to achieve.
• The plan should encourage and reward “stretch” levels of performance versus rewarding minimally acceptable levels of results.

Magic occurs when people make the connection between what they can earn and the level of control they have over making those results happen. It’s even more amazing when they start sharing resources and making things happen as a team. Suddenly, the owner isn’t the only one, “who cares about things around here.”
 
Do these plans work?
 
You bet they do.

Larry Fish is president of GreenSearch, a human resource consulting organization. He can be reached at 888/375-7787, peoplesmarts@gie.net or via www.greensearch.com. PeopleSmarts® is a registered trademark of GreenSearch.