It's critical to tie compensation and any additional incentives to the nature of the work rendered, says Beth Carroll, principal, The Cygnal Group. Some roles are indispensable to a company's bottom line, others are not. This is true in any company and in all areas, such as supply chain management.
When you look at workers on an individual basis, some positions - warehouse managers, load planners, dispatchers, to name jut a few - have a higher impact on business results than others. Clearly that will be factored into their salaries. But what about incentives? One of the biggest mistakes the CFO can make is to treat incentive compensation as an afterthought, something that can be done only if profits are to be distributed. "People need to know what they have to do to get a given pay-out," Carroll says. "Tell them their goals up front. Don't say, 'If we have money, we'll give you some.' You need to have transparency with your employees. That way you get the motivation from them and your plan."
Can compensation plans create dissension within a company? Of course, rather than build morale, some plans can create a difficult environment in which to work. "That is a challenge with some customers," Carroll acknowledges. "There are many different ways to calculate incentive compensation, and doing a commission approach is just one of them. Incentive compensation can actually be a quite flexible tool for your company. It can be structured in a way to get you balance.
"The best incentive plans have a balance between financial and strategic metrics, a balance between individual and team performance, a balance between short- and long-term goals. You can craft an incentive plan that will fit the role. Some will be different for outside sales people, who may need to be more competitive, and some will be for those within an organization, who need to work more collaboratively."
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