Saturday, March 10, 2012

Disengaging From Compensation Schemes

No reinforcement program or incentive plan works forever; but they seem to last forever, lingering on long past the day when their effectiveness expired.  What can we do about it?  Tradecraft literature concentrates on new ideas while giving short shrift to how you erase old ideas that have lost their luster.  Searches on "disengagement" all show topics about employees becoming psychologically distant rather than how you end ineffective motivational plans.  It is about time that we collected the best suggestions on how to back out of reward programs that are still valued and prized by recipients who don't want to lose them.

Every experienced compensation professional knows it is extremely difficult to disengage from any system seen as a significant part of the total reward "contract" with employees.  Simple expectation theory teaches us that once people receive a consequence perceived as valuable, they want it to continue infinitely.  One of my Brennan's Laws is, "Old entitlements never die; they just accrue."

Examination of overall remuneration systems at mature enterprises usually reveals multiple overlapping redundant layers of reward programs and incentives that have been added over the years.  An expert house painter will strip off the old paint so they can most effectively lay a new coat on a freshly cleaned and newly prepared surface.  Maybe we compensation people should similarly strip our jumbled batch of simultaneously administered reward programs down to a clean simple basic core foundation before adding anything new.  Cost-justification is vastly simplified if a promising new plan replaces old ones known to be flawed.  At least, we should explore how to maneuver the organization into a position from which it is possible to add something new without stepping all over the existing redundant or ineffective stuff that has accumulated over time.

Old reward programs take on a life of their own.  Once in an annual budget, they are (relatively) easily renewed.  They become taken for granted, both by management and by the employees, readily accepted as a fixed cost.  One would think that the past decades should have given us many opportunities to practice disengagement and to gain experience about which methods work best in what situations.  The fact that you can't easily find such information is depressingly informative.  Few enterprises make money by recommending that their clients reduce expenses; after all, they want to be paid themselves, and that generally means an increase in expenses, so they tend to jump enthusiastically on the "invest a penny to make a dime" train.  Rarely do you see consultants saying that their client should end a popular but expensive compensation scheme.  By the way, I see "scheme" as the British do, as a neutral synonym for a "plan" rather than meaning a "wicked nefarious plot".  No, rather than drop programs, consultants are expected to create added  programs that pay out more money on top of the sums already being dispensed; otherwise, the authors of the pre-existing reward plans have to admit they are flawed or no longer appropriate.

Enough of background chatter stating the obvious problem.  Let's get down to potential solutions.  Naturally, they will not be universally useful.  What works very well in one situation may be completely ineffective in a different environment; but we have to start somewhere.  To prompt more thoughts, here are some initial quick suggestions on how to withdraw from a reward program:

• Buy out pre-existing programs with a one-time cash payment
• Fold old systems into new incarnations
• Wipe the slate clean by cancelling all current incentives as a date certain, then redesigning all
• Incorporate expiration dates into existing plans
• Forbid the addition of any new program until others have reached their drop-dead dates

What else can you suggest?

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he's pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything. 

Thanks to E. James (Jim) Brennan / Compensation Café


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