Tips for implementing a variable or incentive pay plan

Former CCH HRM Advisory Board Member Catherine M. Meek, president of the human resources consulting firm Meek and Associates, offers these tips on implementing a variable or incentive pay plan.

Integrate business strategy. Make sure your program is integrated with your business strategy -this is crucial to acceptance and support by top management. If you don't have the business plan, ask for it! Analyze it, understand it, and use it to develop your pay strategy.

Focus on ability to influence. Design it to focus employee efforts on areas critical to organization survival and success by rewarding results employees can influence.

Reflect culture and values. Be sure the plan and the process reflect your culture and values. For example, don't use a gainsharing plan if you're not willing to share information with employees or if trust is low.

Make it cost-effective. Make sure the program is cost-effective. If your company is squeezing out profit margins to survive, participate in that effort by maintaining or reducing fixed compensation costs. Consider paying salaries only to the range midpoint or market rate and provide bonuses to reward outstanding performance.

Give it time. Don't expect perceptions to change overnight. Traditional systems have been around a long time. Changing to a variable pay philosophy is not a short-term project.

Train and educate. Be prepared to spend time and effort to train and educate managers and employees, alleviate their fears, and gain understanding, acceptance, and credibility for any new approaches.

Send a clear message. Do this through clear, ongoing communications. These messages must reinforce the link between the company's ability to achieve business goals and succeed in the marketplace and its ability to support an effective compensation plan.

Pay for what you want. Don't be stingy. If you want outstanding results, pay outstanding rewards.

Pay often. Pay out as frequently as you can administratively. The closer the reward is to the performance event, the better it will reinforce performance. Good performance doesn't just happen once a year.

Make the program important. Publicize it, promote it, market it. Make sure everyone knows and understands its importance to them and to the organization.

Manage expectations. Don't build unreasonable expectations. Be realistic and follow through with promises. Don't tell employees you'll pay for results and them give discretionary awards to select people who don't meet their objectives.

Inspire. Above all, inspire. Do whatever you need to do to get people excited and focus on improving individual and organization performance.