Many Businesses Misunderstand the Role of Incentive Plans

Irvine, CA, January 10, 2014 --(PR.com)-- Defining the role of an incentive plan in a compensation structure is critical and often misunderstood by many business leaders, according to Ken Gibson, senior vice president at The VisionLink Advisory Group, a compensation consulting firm headquartered in Irvine, CA. As a result, many companies either misuse incentives or abandon them altogether thinking they have no real impact on performance.

Much of the literature on the subject in recent years simplifies the issue and suggests incentive plans don’t really “work,” the VisionLink principal asserts. He believes there is a critical role incentives should play.

“If the view is that incentives don’t really change behavior, then I agree with that,” Gibson said. “However, that isn’t the role of an incentive and it misses the point. What companies need to do is define what it means to create value in the business and have a philosophy about sharing it with those responsible for its creation. When incentives are turned into 'value sharing plans,' they take on a different meaning and have a different impact.”

The compensation firm leader will discuss the proper role of incentives in a webinar on January 28, 2014 entitled, “Do Incentive Plans Really Work?” Registration for the free broadcast can be accessed at: http://www.vladvisors.com/compensation-knowledge-center/webinars/e-131-do-incentive-plans-really-work.aspx.

Gibson explained that compensation in general—and incentives specifically—are a way of framing the financial partnership a company has with its employees. “If you do away with incentives, or what we prefer to call value sharing plans, you fundamentally alter the nature of the relationship between key producers and the organization. The best talent wants to know that if they help create value, there’s a mechanism for sharing it. In that context, whether a plan ‘works’ or not has to do with whether it is creating alignment between the way people are paid and the growth objectives of the business they are responsible for achieving.”

The compensation consultant further explained that a company has to be able to determine which kind of value sharing is most needed at a given point in time and therefore should be given the highest priority. Sales incentives, for example, help define individual roles on a sales team and how completion of each part of the sales process should be rewarded. Performance incentives, on the other hand, create focus on the revenue engine of the company and what needs to happen “this year” to ensure the business model is succeeding. Growth incentives share value that is created over an extended period of time—typically three years or more.

“Ultimately, most companies will need all three kinds of incentives to build a value proposition that will attract and retain the best talent,” Gibson summarized. “Each is a strategic tool to help communicate ‘what’s important’ and the outcomes the company, department or individual should be focused on achieving.” He went on to explain that each plays a critical role in creating a unified financial vision for growing the business, which the pay consultant considers to be the ultimate role of compensation in an organization.

In the webinar on January 28, the VisionLink principal will discuss these concepts in detail and help organizations understand the proper role of incentives and how they can be made more effective.