Finding success with incentives

Benefits experts say an effective incentive program should befocused on a small number of goals, be clearly defined and not payout benefits if goals are missed even in tough economic times.

A survey by management consulting and outsourcing firm HewittAssociates finds employers expect to spend 10.3 percent of theirpayroll on variable pay awards. Although down from last year, it's upsignificantly from the 3.8 percent spent in 1991.

Employers typically haven't felt obligated to pay out incentivebonuses when targets are missed in tougher economic times, saidMaureen Tarantello, leader of the strategic-rewards practice at humanresources consulting firm Watson Wyatt Worldwide. To do so would makethe programs less effective because employees would think of them asentitlements.

To be effective, incentives programs need to have clear andmeasurable goals, said Art Friedson, vice president of co-workerservices at Vernon Hills-based CDW Computer Centers Inc. It has longused incentives programs.

Communication is also key on exactly how the programs work, andupdates should be provided on a regular basis, experts said.

"People need to understand what drives the bonuses," saidFriedson. "What makes them successful [at CDW] is that people know onany given day exactly where they stand."

The plans shouldn't focus on too many variables.

"Focus on a couple of financial goals, not more than two or threeobjectives," said Kenan Abosch, business leader with managementconsulting and outsourcing firm Hewitt Associates LLC.

Goals should be realistic, he added, with "some stretch to them,but they shouldn't be impossible to achieve."

It's also important to think fun.

CDW's Friedson recalled, "In the third quarter, we had anaggressive sales goal, [CEO John Edwardson] told us if we made it, hewould shave his head."

The target was reached.

"It's not always about money," Friedson said.