How Often Should Incentive Plans Be Changed?

Managing incentive programs and tuning them to the needs of the business is an important strategic decision.

Changing Incentive Plans Can Harm Morale

The purpose of an incentive plan is to spur greater efficiency in a business. Long-established incentive plans can become a "status quo" element in an organization, and employees intensely dislike changes, especially changes that are tied to their compensation or some sort of perk that they've come to expect. Many businesses make the case that the disruption caused by changing an incentive plan outweighs the theoretical benefits of the change.

Plans Need To Meet Expectations

Incentive plans run into problems when their outputs fall short of employee expectations. This is one reason why profit-sharing plans tend to be anathema in businesses with highly variable cash flow, for instance.

Bottom Line

You should always ask yourself whether your current slate of incentive plans is rewarding what you want your employees to do, and whether it will fall short of their expectations. Minor adjustments to incentive plans are a good thing, and making sure that incentive plans aren't "zero sum" (where one employee gets the benefit and all the others fall short) is sound HR practice.

References

• BusinessTown.com--Managing People (Compensation): Choosing Incentive Plans