Page 101 - Retaining Top Employees

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Compensation: Why It (Almost) Doesn’t Matter 89

Incentives
Incentives are elements of compensation paid to employees who
attain goals that the employer and the employees reasonably
expect can be attained in the period under review. Incentives
may be cash or nonrecurring, non-cash benefits (e.g. extra vaca-
tion time, a paid holiday or conference, gift vouchers, etc.). For
reasons detailed below, incentives are most often cash.
Because employees view the incentive targets as being
attainable, over time they usually come to see incentives almost
as a part of base pay (unlike bonuses, as explained in the next
section).
As with base pay, the real room for damage with incentives is
that failure to pay them will damage or destroy the employees’
trust. (That’s true for almost any reason. If an employee fails to
meet the targets, he or she will lose trust in the employer’s ability
to set targets that are attainable. If an employee meets the tar-
gets, but the employer just doesn’t want to pay out, the employ-
ee will lose trust in the employer’s basic honesty. The only case
in which the employer gets a break is if the employee fails to
make the targets and accepts responsibility for failing.)
It’s essential, therefore,
that incentive goals be set Watch Your
clearly and transparently Reputation
and that any failure to pay The area of unmet
the incentives be mutually incentive targets is fraught with diffi-
culty for an employer’s reputation.
understood as being for fair
Fudging incentive targets or manipu-
and logical reasons. For
lating results to avoid paying out will
top employees especially,
severely damage your chances of hir-
any sense that the employ- ing top performers. Don’t do it!
er is “massaging” results to Even the perception of doing so can
avoid paying incentives or cause damage. So if you do not pay an
is setting incentive targets incentive that the employee could rea-
artificially high will lead to sonably expect was earned,make sure
major retention problems. that you discuss the issue and reach a
common understanding about the rea-
Incentives look like
son(s) for the nonpayment.
they should motivate (one