14 Jun Using Incentive Compensation Software to Drive Performance
Incentive compensation is the process of paying employees based on the performance of an entity. Also sometimes referred to as pay for performance, it can be used to motivate teams and support both recruitment and retention efforts. While it is among the most effective means of driving desired outcomes in an organization, it can also lead to increasing complexity for compensation professionals. For this reason, many organizations have increasingly turned to incentive compensation software. Here, we take a closer look at incentive compensation, as well as the solutions your company can implement to administer it effectively.
Incentive Compensation Examples
The accounting resource SimpleStudies.com explains that many U.S.-based companies pay executives and employees incentive bonuses based on performance measures. This helps to ensure the overarching strategy of the organization is aligned with the interests of its workforce. Some examples of incentive compensation are annual bonus plans, stock options, and long-term incentive plans.
Incentive Compensation Best Practices
While a Forbes article notes that “people do work for money and most of us enjoy spending it,” many experts warn of the risks of using only extrinsic motivators – i.e., cash bonuses – to engage employees and drive performance. It is therefore recommended that organizations create environments in which employees can connect to the company mission, grow professionally, and take an active role in achieving the company goals.
The Society for Human Resource Management (SHRM) also advises organizations to be cautious with incentive compensation. While they note that this approach to pay can “differentiate employees fairly for the value they create,” it is important to ensure employees understand precisely how pay is calculated. Confusing metrics and hard-to-follow pay strategies can actually have an adverse effect and wind up de-motivating associates.
Using Software to Support Simplicity
Compensation software has a two-pronged advantage: not only does it support error-free, automated incentive compensation planning, but it also helps employees understand exactly how their pay is structured. This eliminates any guesswork or doubt for both parties, thereby helping employees align themselves more closely with the company strategy, and also helping compensation management professionals become more effective in their roles.
HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.