Why Every Organization Should Have No More than Three Incentive Plans

Why Every Organization Should Have No More than Three Incentive Plans

In the pursuit of meeting every employee’s unique needs and expectations while incentivizing key performance outcomes, some organizations design and implement a number of robust incentive plans. Yet, this often leads to complexity. Not only is having too many plans an administrative burden, but employees can become confused and misled about which incentives apply to them—and more importantly, which outcomes they should focus their efforts on. For this reason, organizations should enforce a limit on incentive plans: having three or fewer is fine, but try not to exceed this number.

The Advantages of Sticking to Three Plans

With the right approach, it can take months to define the metrics and proper goal levels for an incentive plan. After all, it’s critical to ensure you’re using incentive plans to provide the greatest value for both the organization and its employees. Yet, if during the planning stages your company determines that three metrics simply aren’t enough to accomplish everything needed to get done, you can still break more than three goals down into multiple plans.

Maybe you’ll need two or three plans, but be cautious not to exceed this number. Each plan must have enough value to direct decisions and actions, and this value becomes more dispersed the more plans you add. Plus, most people find it hard to remember more than three things for an extended period of time. Limiting the number of your incentive plans allows them to stay focused on what matters most, keeping these factors in mind every time they make a decision.

Three plans or fewer are also easier to communicate. And, with great communications, you’re more likely to get most of the participants to remember the purpose, the metrics, and the potential value of each plan.

Sometimes, we may strive to simplify incentive plan administration and management by using the same incentives for the entire organization. Yet, in our attempt to keep things simple for ourselves, we may make it impossible for someone else to understand or care about the plan. If employees can’t find the purpose, metrics, or potential value in a plan, it’s unlikely that they’ll care. On the other hand, when they have a clear line of sight into these factors, they’re much more likely to care, and your incentive plans thus become more effective.

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.

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