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Which Employees Should Get Incentives?

It’s the giving season. Should you give everyone a shot at an incentive, or choose a select few (often higher-level) employees to reward?

As my multitudinous Twitter followers can attest, CFO has launched a holiday cubicle decorating contest. The winner, to be determined by a panel of partial judges (everybody at the company votes), receives a $200 American Express gift card. I like crafts and love the idea of brightening up our office during these drab months, so I might have participated no matter what. But it was the gift card that clinched it. Based on the fact that only two of my coworkers had decorated their desks, I was confident I could win. And who turns down $200?

Then I decided to join forces with my cube neighbor and fellow editor, Alissa Ponchione. One day last week, I enlisted Alissa on a trip to Jack’s, the all-purpose store next to our office on 45th Street in Manhattan. At the sight of garland, colored lights, and giant sparkly bows, she was hooked. But I like to think it was the teamwork that really drew her in. And now, here we are, talking smack about our coworkers, spending all our money on holiday decor and engaging in seasonal merriment.

CFO’s holiday decorating contest is what many would call an employee incentive. Incentives have been around for a long time, but companies are still trying to figure out how and when to dole them out. That’s true for CFOs in particular. The finance department is full of worker bees like me and Alissa, and they could use a little motivation (especially around this time of year). Maybe for the finance department, the stated goal is to accelerate collections, close the quarter before the deadline or cut costs. The broader goal of incentives might be to retain valuable employees.

There are a lot of things companies consider when designing an incentive program, but one of them stuck out to me. Should incentive programs be open to everyone in a particular department who wants to participate? Or should they be exclusive and targeted, with management singling out the best performers and giving them bonuses and perks?

Opinion_Bug7It seems logical that companies that want to retain employees would give incentives to specific people: the workers they really want to stick around. Indeed, Marc Newman, associate managing partner at Anchin, Block & Anchin, recommends that companies provide incentives to a handful of valued employees, typically mid-career, higher-level workers, rather than distribute them evenly. He says this approach allows companies to customize incentives and target them to the “small number of people that could have an impact at the company.” (Read: not the worker bees.)

For instance, employers could give deferred bonuses to a few workers. “Let’s say the company makes a million dollars and you have a 10 percent phantom-stock interest, so you get $100,000,” Newman says. “The company might say each year, ‘We’re going to give you half of that — $50,000 — but the other half we’re going to hold on to.’” Employers could tie the payout period to an employee’s needs. If a worker is going to have children in college in 15 years, the company could say, “We’re going to start to pay you that money once 15 years are up and your kids go to college” or to another employee, “once you’re 60 and you’re retirement age.” Personalizing the payout period is key, he says. “If you hold onto a piece of the money and give it to them at a later date, as long as they stay with the company, that really holds onto them.”

Companies could also give out equity grants, which allow employees to own part of the firm. But Newman says firms should reserve equity for employees they know really well, because a new partner would likely want to change the way a firm makes decisions. “It could take years to get to know them, see how they perform and what their aspirations are, and if you really want them as a partner,” he says.

But Heath Suddleson, speaker and author at Executive Achievement, a leadership coaching firm, says companies should give all employees a chance to reap rewards, not limit the bonus to a handful of people or hand out secret bonuses to valued employees behind closed doors. Indeed, targeting incentives to higher-level employees is problematic, he says. “Stock options are typcially only for officers in the company,” says Suddleson. “You’re not going to give stock bonuses and incentives to a lot of your middle management or people on the production floor. But if you think about where the action happens to really make things improve, it’s got to happen at the worker-bee level. You’re probably not going to incentivize the worker bees by giving the executives more bonuses and stock options.”

Rather, an ideal incentive would set a bar (bringing in a certain amount in collections, for instance) and challenge all employees to meet it, Suddleson says. Then everyone who passes that mark would get a bonus or a non-monetary incentive like flextime or a paid day off, perhaps on a sliding scale depending on how well the worker performs. In that scenario, “you’re truly rewarding the performers, and the people that didn’t perform don’t get the reward,” he says. If you set a limit on how many people can get an incentive, you’ll demotivate the rest of the team, Suddleson says.

“So what will happen is someone will go, ‘Frank has all the best accounts, he gets three sales and he’s made his numbers for the year, where I’ve got to slug it out with 30 different accounts to make half of his numbers. There’s no way I can compete so I’m not even going to try.’ Not only are they not going to try, but what I’ve found with a lot of these employees is they actually slow down. They’ll cut back their achievements subconsciously to prove the point that it can’t be done,” says Suddleson.

And this is where teamwork comes in again. If there are a limited number of incentives, everyone who thinks they can meet the goal will compete. That means they won’t be working together. But if everyone has a shot at the pot of gold, they can assist each other once they’ve met the goal. “If I encourage Sally, who is there next to me, to make her numbers as well, I’m not jeopardizing my own bonus,” Suddleson says. “That creates a teamwork environment, where you say, ‘Hey, have you done this, have you checked up on this client?’ I’m motivating my team members because we want to see everyone win the bonus instead of holding things close to the vest and undercutting each other.”

If you want to foster a sense of competition, break people up into teams (like Alissa and I formed). People will continue to perform, but they can benefit from each other’s experience (Alissa, for instance: great at cutting wrapping paper. I, on the other hand, am great with taping and fastening things to walls.). And employees will still have someone to talk smack about (the other teams). This might be a stretch, but you could also make employees feel like they’re competing against management, Suddleson says. “As managers, you could essentially say, ‘Hey, I dare you to come take my money.’ There’s nothing wrong with having a competitive environment.”

Challenge accepted, management.

So what do you think? Do incentives work better when you give them to a handful of special snowflakes, or do you prefer to give everyone a shot at the glory (and the Amex gift card)?

One thought on “Which Employees Should Get Incentives?

  1. I think the example of deferred comp over 15 years is a bad one. Somewhere between 3-5 years would have the desired effect to motivate and retain key staff.

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