While incentive plans are usually designed in the hopes they will positively impact productivity, engagement and the bottom line, little assessment and development happens at the leadership and management level. Incentive plans aren’t just about the financial rewards; they are about fostering the desired performance and behaviors of both leaders and employees. Often seen as the magic bullet for engaging employee behavior and driving desired performance, more often than not, incentive plans can end up demotivating employees instead. Over the years, many clients have come to us to help them rescue their incentive compensation plan when they realize that is failing to achieve its overall goals and return on investment. There are many reasons why incentive plans fail to meet their potential. If yours isn’t working, explore the reasons why, assess what is missing or misaligned, & throw your incentive plan a lifeline!

1. Does Your Incentive Plan
Need Rescuing?
There are many reasons
why incentive plans fail
to meet their potential. If
yours isn’t working,
explore the reasons
why, assess what is
missing or misaligned, &
throw your incentive
plan a lifeline!
www.CaliberLeadership.com hhilliard@caliberleadership.com 416.406.3939
By Anne Dranitsaris, Ph.D. & Heather Hilliard April 2015
O en seen as the magic bullet for engaging employee behavior
and driving desired performance, more o en than not,
incen ve plans can end up demo va ng employees instead.
Over the years, many clients have come to us to help them
rescue their incen ve compensa on plan when they realize that
is failing to achieve its overall goals and return on investment.
While incen ve plans are usually designed in the hopes they will
posi vely impact produc vity, engagement and the bo om line,
li le assessment and development happens at the leadership
and management level. Incen ve plans aren’t just about the
financial rewards; they are about fostering the desired
performance and behaviors of both leaders and employees.
Incen ve programs have been shown to boost performance by
25 to 44 percent. However, these figures are dependent, in
part, on the design of the plan, and more importantly, on how
the plan is implemented by the leaders of the organiza on.
Unfortunately, most leaders don’t understand what must be
done to make incen ve programs successful as more me is
spent on the design than on ensuring its effec veness. Despite
having a design that “should” work, the following could be the
reason(s) why your incen ve plan is failing to achieve its
poten al and some ps on how you can “Rescue” your plan.
This ar cle describes the five key reasons that incen ve plans
fail to achieve their poten al. It highlights the role of the leader
in driving the success of the incen ve plan and what needs to
happen in order to RESCUE the floundering plan.

2. Failure to Link
Incentives to Strategy
Incen ve plan design can fail to take into account the
key performance and behavioral drivers that will make
the business successful. Too o en plans are designed to
consider only some aspects of company performance,
like financial results, and omit measuring other drivers
such as safety, customer sa sfac on and achievement
of strategic ini a ves. Incen ve plans are most
effec ve when they promote outcomes and behaviors
that are consistent with the company’s strategic plan
and aligned with business development, financial,
produc vity, and talent development goals.
Without meaningful links to the company’s strategy
and key performance drivers, incen ve plans may end
up promo ng certain types of efforts and behaviors
that are contrary with what the actually business
needs. One client’s plan focused employees only on
compliance and financial results while the company
was trying to embed its new brand into its culture and
prac ces. Leaders and employees resisted the change
for fear it would affect their incen ve payouts causing
delays in the transi on the organiza on was
undertaking to be er compete in its markets. The
Rescue was to reset the plan to set goals and measure
performance related to the cultural change.
Linking the incen ve plan to the strategic plan must be
done in a way that allows it to be translated to all levels
of the organiza on that are par cipa ng in the plan. If
employees cannot see how they can impact on the
goals that underlie payout determina on, it
undermines the effec veness of the plan. One client
wan ng to integrate a number of acquisi ons decided
‘Alignment, Integra on and Profit Growth’ would be
the focus areas for the cascaded goal se ng under the
plan. Unfortunately, employees working on the plant
floor had to make up goals to fit as they really didn’t
have direct contribu on to these strategic priori es.
The Rescue was to redefine the focus areas to cover
broader drivers that employees at all levels could
contribute to: Innova on, Opera onal Excellence,
People First, & Profit Growth.
Linking incen ves to the organiza on’s strategy is
largely about the design of the incen ve plan. However,
it also requires the leaders to be able to cascade
organiza onal goals into func onal or business unit
goals and then into individual accountabili es to foster
alignment at all levels. This takes me and o en there
is resistance from the leaders to engaging in a robust
planning process which gets in the way of the impact of
the plan.
Without a system that tracks the cascading of goals,
you can’t ensure that your employee goals are aligned
with the organiza onal strategy. Tracking is o en done
in a haphazard, informal fashion without incorpora ng
the en re organiza on. Without a system for goal
alignment that lets you constantly measure
performance against employee goals and immediately
assess risk areas when goals aren’t being, you aren’t
able to flag misalignments and issues un l it is too late.
Rescue your incentive
plan by…..
D S P
F
T
©2015 Caliber Leadership Systems Page 2

3. Misalignment of the
Performance
Management System
A func oning performance management system that is
ed to the determina on of incen ve plan payouts is
essen al to the effec veness of the plan. In addi on to
mo va ng performance, it can support strategic talent
management and drive business strategies and change
efforts. However, some research shows that 75% of
incen ve plans are not connected to the company’s
performance management system and are therefore
failing to achieve their poten al.
When designing a performance management process to
be linked with incen ve pay, it is impera ve that both
employees and managers know what the expecta ons
are, how they will be measured, and how they will be
compensated when achieved. This goes beyond
incorpora ng best prac ces in designing the
performance management programs. It is about
measuring the right performance in a way that supports
consistency, accountability and con nuous
improvement.
Many organiza ons have abandoned their performance
management process as being too difficult or causing
too much frustra on amongst employees and
managers. Others have over‐engineered their process
to the point of it bogging down the en re organiza on
for weeks during review me. One client we worked
with had two performance management processes –
one for se ng goals to determine incen ve payouts
and another 15 page document for assessing
competencies. The Rescue was to simplify the process
by crea ng a single process that ed goals to the
strategic priori es of the organiza on and eliminated
goal se ng for all task focused roles (managers were
making goals up just to get the exercise done). Rather
than assess a long list of competencies, we defined 5
guiding principles for the organiza on and used these
to assess behavioural alignment.
The misalignment of the performance management
system is the greatest barrier to achieving the poten al
of the incen ve plan. It is the key tool for showing
employees how they can earn payouts under the plan,
by achieving the expecta ons or goals set out in the
performance plan, and then le ng them know how
they are doing against these expecta ons. Subjec vity
in the process of payout determina on is the number
one complaint of employees and represents a missed
opportunity for organiza ons – the monies paid under
the incen ve plan are not driving performance or
behaviour of the employees over the course of the
year.
Leaders Don’t Know
How to Effectively
Manage Performance
Assump ons are made about a leader ability to develop
performance goals for their department and direct
reports as well as to manage performance. While some
are quite competent to do so, many leaders don’t have
the experience or training to ensure alignment and
Rescue your incentive
plan by…..
I P
M I P D
S P D
A
A ‘ ’
www.CaliberLeadership.com hhilliard@caliberleadership.com 416.406.3939

4. accountability. The plan may work in some departments
and not in others, crea ng fac ons in the company.
The unfortunate reality in most companies is that
performance management training is either non‐
existent or delivered in a day‐long event that does
nothing to build a leader’s skills or help them to
overcome their resistance to the process. Managing and
coaching the performance of direct reports, especially
when it involves giving nega ve or correc ve feedback
or explaining why they have failed to reach their
performance targets, requires a certain skill level and
ability to work through interpersonal conflict on the part
of the leader. To build these capabili es, leaders must
work through a cycle of learning, prac cing, reflec ng,
learning and prac cing some more un l they master
each of the skills involved.
Leaders must be able to give their direct reports honest
and authen c feedback so the employee is not
opera ng under the illusion that they are doing great
(no news is good news). They should never wait to the
year‐end performance review to let employees know
how they are doing, and yet many do. Leaders will avoid
ge ng involved with their employee’s performance
management for fear their employees may get upset,
especially when they have to deliver nega ve or
correc ve feedback. They will either be too nice, giving
the wrong impression or will become as controlled,
direct and factual as possible.
Because leaders blame the performance management
system for their inexperience or incompetence at
managing performance, organiza ons tend to keep
reinven ng the performance management process
rather than inves ng in the skill training necessary. They
would rather talk about how much they dislike the form
or process than to admit they need help. Even senior
leaders are guilty of not complying with their own
systems, some mes looking to Human Resources to let
them off the hook! Providing an ongoing coaching
program for leaders to build the skills over the course of
a year will add more value to the effec veness of the
incen ve plan than any changes you could possibly
make to the forms.
Leaders Don’t Know
How to Effectively
Measure Performance
The success of incen ve plans also depends on the
performance measures and metrics that are used to
determine payouts under the plans. Performance
metrics drive the right behaviors in people and define
what needs to happen in order for them to achieve their
incen ves. They encourage or mo vate employees to
perform in a manner that is desired by the company.
Too o en leaders will dismiss measurement as being too
difficult or not possible. The fact is that most leaders
struggle to define metrics for their own area of the
business as well as for their employees. As a result, the
measurement of performance is all over the map and
employees complain about differences in expecta ons
and inconsistencies in ra ngs (easy vs. hard markers) as
a result.
In one client, some leaders were se ng performance
goals that were over and above the job or represented a
significant stretch in order to achieve payouts under the
incen ve plan, while others were se ng goals that were
simply what employees were expected to do on a day‐to
Rescue your incentive
plan by…..
C T
A
P M P
©2015 Caliber Leadership Systems Page 4

5. ‐day basis like wear their uniform. The differences came
down to the percep ons of the leader as to why an
employee would receive an incen ve payout as well as
their own comfort level with measuring performance.
Some mes leaders chose the wrong metrics to try to
change employee behavior or because it is what is easily
captured. If the metrics are too focused on a desired
outcome, they can get in the way of achieving a strategic
priority. For example, a strategic priority was customer
loyalty, however the metric used for the incen ve was
increase in percentage of service calls. More service calls
actually lowered customer sa sfac on which threatened
customer loyalty. Equally, leaders can focus on a single
metric – e.g., due date – as the measure of success
which doesn’t capture everything that goes into the
successful comple on of a goal.
Because measurement is the lens through which most
performance is viewed, training leaders to be objec ve
when measuring performance is cri cal. Without proper
training and coaching of leaders, there is the poten al
for both uninten onal and inten onal subjec vity,
distor on and manipula ons. Leaders can reward the
wrong behavior, measure the wrong things, measuring
too much or too li le. This causes employees can
become cynical about measurement and ul mately,
about the incen ve plan.
Failure to Communicate
Leaders o en underes mate the importance of
constant, REPETITIVE communica on to ensure
understanding of the incen ve plan and to keep
employees in the “know.” They might believe they have
told employees about the plan, but if it is not reinforced
and spelled out for them, employees will not understand
the plans composi on, framework and inten on. Nor
will they know how EXACTLY to successfully achieve the
performance necessary to reach various payout levels.
Failure to ensure that employees understand what is
expected of them increases the likelihood of morale
problems that result from misinterpreta ons of how
incen ves are awarded. Poor or inconsistent
communica on about the plan frustrates and
demo vates employees across the board.
Leaders and managers need to be able to have
conversa ons that effec vely connect pay and
performance with business results, otherwise it fails to
mo vate or enhance performance. Most importantly,
leaders and managers must understand the incen ve
pay process in order to communicate, build
understanding of, support and administer it. O en mes,
a lack of understanding causes managers to ignore or
adapt the process as they see fit.
The leadership team has to have a communica on
strategy for le ng employees know about the
company’s performance throughout the year so
employees’ expecta ons for bonuses are in alignment
with reality. This doesn’t mean they have to know how
much money the company is making. They need to know
where they are rela ve to achieving the incen ve based
on the profit goal
Some companies do not communicate to their
employees that business has been slow un l the week
that bonuses are normally paid. It is only at this point
that management breaks the bad news. Most
employees will base their perspec ve on how the
company is performing by how hard they are personally
working. The formula is that if there is a lot of work for
www.CaliberLeadership.com hhilliard@caliberleadership.com 416.406.3939
Rescue your incentive
plan by…..
H
F S
L
T

6. me, the company must be doing well. Leaders have a
responsibility to communicate company performance
throughout the year so employees’ expecta ons for
incen ve payouts are in alignment with reality.
The Caliber Rescue
At Caliber, we know what it takes to design a new
performance‐based incen ve plan or rescue an exis ng
one to ensure they achieve their poten al through
effec ve design as well as the facilita on of their
implementa on and execu on at all levels of the
organiza on. As a facilitator of the process, we provide
an outside perspec ve, and act as a resource for guiding
the process itself.
During the cascading phase, we can help to avoid failure
by facilita ng the linkage from the strategic objec ves
down through the departmental and or func onal level
to the team and individual level. We also provide
training to leaders, managers and supervisors on how to
effec vely plan, manage, measure, review performance,
to ensure alignment.
We have extensive experience helping organiza ons set
up incen ve or compensa on plans that link to the
strategic plan and then delivered through the
performance management system. If you have an
underperforming incen ve plan, contact us. We will
perform a diagnos c on your plan and let you know
what you need to do to get back on track!
We help by...
 Facilita ng strategy development, business planning
and retreats
 Building authen c, high performing leadership
teams
 Designing organiza onal structures
 Leading cultural change
 Designing & implemen ng succession, performance,
incen ve/reward & recogni on systems
 Leveraging personality assessments
 Selec ng candidates for key roles
 Providing individual coaching and career counselling
For more information, contact:
Heather Hilliard
hhilliard@caliberleadership.com
416.406.3939
www.CaliberLeadership.com
Rescue your incentive
plan by…..
HAVING A STRATEGY & PLAN FOR
UPFRONT AND ONGOING
COMMUNICATION
ENSURING LEADERS UNDERSTAND THE
MECHANICS OF THE PLAN
HAVING FOCUS GROUPS & INDIVIDUAL
SESSIONS TO GET FEEDBACK
TRAINING LEADERS & MANAGERS HOW
TO COMMUNICATE WITH EMPLOYEES

7. Do You Need An Incentive Plan Rescue?
Many of our clients first come to us to get us to rescue an incen ve compensa on plan that isn’t achieving its
intended objec ves. O en seen as the magic bullet for engaging employees or for changing their behavior,
more o en than not, it ends up demo va ng them instead. Incen ve compensa on plans are intended to
drive behaviors in employees that will posi vely impact produc vity, engagement and the bo om line.
How can you determine if your incen ve plan is effec ve? Answer the following ques ons and if you answer
“no” to any of the following ques ons, chances are that you are not ge ng the most benefit out of your
plan:
1. Have you created your strategic plan and communicated it to the rest of your organiza on so employees
understand what you plan to accomplish?
2. Have goals been cascaded down via the performance management system to all levels so they are able
to iden fy their contribu on to the overall objec ves?
3. Does your incen ve plan iden fy the desired behaviors of employees that ensure objec ves outlined in
your strategic and business plans will be met?
4. Do you have well defined and communicated “best prac ces” for leading and managing an incen ve
plan?
5. Do your leaders/managers know how to create performance plans for their direct reports that link indi‐
vidual goals to bonus?
6. Do your employees know that the company must achieve a certain level of profitability, safety perfor‐
mance, and other goals before a bonus pool is created?
7. Have you iden fied individual performance objec ves that employees must accomplish to be paid all or
a por on of their targeted bonus?
8. Do your leaders and managers give periodic, objec ve feedback on the performance of their direct re‐
ports in an easy‐to‐use performance review process?
9. Do you have regular communica on to employees about how well the company is doing so there is no
year‐end let down?
10. Do you know what your compe tors are paying for base pay and incen ve compensa on so we you be
compe ve in your offerings?
Need help aligning your strategic plan, performance management and rewards systems? Contact Heather
Hilliard at hhilliard@caliberleadership.com.