Elements of Enterneering®/Culture/Incentives
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The performance principle serves as the basis for every company. Good performance should be rewarded, and special, above-average or outstanding performance should be appreciated especially. In addition to all the intangible factors, performance-related compensation remains one of the most important conditions of every employment relationship. In addition to the ‘reward’ for good performance, i.e. regular income, many companies have established incentives as a fixed component of performance recognition. Incentives are all those elements that acknowledge exceptional performance or serve as a motivator or goal, driving individuals to perform above average or exhibit a specific behaviour.
The recipients of incentives can include not only employees but also customers, suppliers and other partners of a company. Incentives are intended to motivate individuals or groups. Therefore, incentives and recognition measures are not available to the entire workforce, clientele or partnership in the same dimension. Also, incentives should not be equated with benefits. Benefits are advantages, perks, subsidies or allowances that are offered to employees or customers without any reference to a one-time or exceptional personal performance. These include, for example, subsidies for childcare costs for employees and free access to normally chargeable additional services for customers. In simplified terms, benefits could also be described as allowances with a positive free-rider effect.
ADVANTAGES AND DISADVANTAGES
Sustainability: There is always a lot of discussion, especially in HR circles, about the sustainability of incentives. Some studies conclude that incentives in the job can have unintended consequences. Instead of enhancing motivation and the willingness to perform, they can have the opposite effect in certain circumstances. In these cases, incentives can disrupt concentration on the actual task and lead to a higher error rate.
Blunt tool: In many companies, an expected value has been emerged for a part of the workforce in terms of the usual dimension of incentives after years of incentivisation. In other words, it is expected that a certain amount will be received on average. Others, as part of their expectation management, generally regard incentives as non-plannable payments with no real value for their household incomes. If companies do not award their incentives according to clear, transparent and fair rules, a further form of staff ignorance of the incentive system quickly develops. The incentive system is then perceived as arbitrary and can be associated with poor management practices. In such cases, achieving sustained performance improvements through incentives becomes costly and laborious, and often ineffective.
Performance stimulator: However, there are also individuals whose value system is oriented towards direct performance comparison, personal validation and the pursuit of 'winning'. These individuals require performance principles in the company, for themselves and their colleagues. In fact, they define themselves through these principles. For them, smart incentive systems can contribute to sustained above-average performance.
Appreciation: Not all those who possess a strong willingness to perform and a high level of commitment associate their performance with a specific incentive or 'price premium'. For them, what is most important at the end of a performance appraisal period is the personal appreciation of their work and performance. If there is an incentive system in the company, it is important for these individuals to feel appropriately appreciated and rewarded within the framework of this system. However, even with just sufficient personal appreciation, they would likely still perform comparably in other appropriate remuneration structures.
The administrative act of negotiation: Additionally, there are individuals who, from the first day of the period of a performance agreement, focus on having favourable documentation and an argumentation basis for the subsequent performance appraisal, and can otherwise carry out their work as usual. In such cases, employees and leaders spend a great deal of time and effort arming themselves argumentatively, without keeping in mind the goals initially set.
Complexity: The examples mentioned earlier show that successful incentivisation is as complex as the diversity of people in the company. It is always a situation-related issue that requires careful consideration, and for which there is no silver bullet. As the size of the company and the number of employees grow, the blend of different types of individuals, personal circumstances and perspectives, and the effort required for a transparent and fair system also increase. Some large companies have established an incentive system in which the largest part of the annual performance bonuses for all employees is determined according to a uniform evaluation scale based on the company’s success. This amount is then multiplied by a factor that accounts for individual qualifications and responsibilities. This means that not everyone receives the same amount but rather a proportionate share based on the overall success of the company or the community. Other companies have no systematic, recurring incentives. They simply offer good salaries, complemented by smart benefits and an appreciative culture, in return for which they can expect good performance from a motivated workforce.
Profitability: Ultimately, each company must determine for itself which approach is best suited to achieve success. From an economic perspective, it is a simple assessment of whether an incentive system is valuable or not. If the cost and effort of providing the incentives are consistently lower than the actual increase in realised profits, the incentive system has proven to be worthwhile. And vice versa. Whichever approach a company chooses, incentives should always be transparent, fair and in line with the company's values. And if a company decides against having incentives, it must have sufficient other suitable forms of personal appreciation and recognition because it cannot work in the long run without praise, rewards and recognition.
HOW?
A successful incentive system requires an adequate 'actual vs target' analysis that clearly shows the objective of the incentive. It must therefore be clear what is to be achieved with incentives, and to what extent the goal differs from the current actual state. For example, if it is highly probable that incentives will not lead to a permanent increase in performance but will serve primarily to maintain motivation and competitiveness, the incentive system should be adjusted accordingly. In such cases, the focus could possibly be on providing benefits to the workforce, supplemented by a periodic bonus payment, depending on the company's success. The effect of the different types of incentives must be compared with the objective, and the incentives that align best with the achievement of the objective must be chosen.
An incentive system should be clearly and transparently regulated and consistently applied. Incentives that have an arbitrary and subjective effect on the recipients and all those around them quickly lead to demotivation and frustration. If an incentive system loses trust within the organisation, its negative effects can quickly outweigh its benefits.
Incentives are intended for the recognition and appreciation of exceptional or above-average performance. In this way, they maintain their special status, and conflicts with regular remuneration can be avoided. It is important to uphold the principle that good work should be expected as part of the regular salary. This means that the performance obligations and remuneration entitlements agreed in the employment contract have an independent meaning in themselves, without associating them with incentives.
Whether individuals, whole teams, or the entire workforce are integrated into an incentive system depends crucially on the objectives and the challenges to be overcome. A distinction between incentives and benefits can help in deciding who should receive the incentives. If an incentive system is to be used as a positive motivator for the entire staff, all individuals must be able to participate appropriately.
Although most people go to work primarily to finance their lives, in many work cultures the focus is increasingly on the non-monetary terms and conditions of employment. These 'soft' factors often play a significant role in terms of satisfaction, loyalty and retention. A value-driven, modern corporate culture with authentic leadership and a genuine purpose makes all the difference in the 21st century. On the other hand, no amount of money can compensate for an unhealthy corporate culture and pressure- and conflict-oriented leadership.