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Linking Pay and Performance

November 19, 2010 - Employee incentives such as variable pay, performance bonuses, and annual incentives are offered by four out of five Canadian organizations surveyed by The Conference Board of Canada. They are intended to motivate employees to achieve performance goals but it seems that most organizations do not measure their effectiveness.

The Conference Board of Canada surveyed medium-sized and large Canadian organization between January and May 2010. The report, Making Short-Term Incentives Work for Your Organization summarizes responses from 130 organizations offering at least one short-term incentive plan.

Karla Thorpe, Associate Director, Compensation and Industrial Relations, said:

"With so many organizations rewarding employees with incentive pay, organizations need to do a better job of finding a link between pay plans and business results, to ensure they are getting value out of their incentive programs," said

The recently released Compensation Planning Outlook 2011 indicates that, on average, organizations are expecting to spend 11.6 per cent of their total base pay spending on short-term incentives - compared with a nearly identical 11.5 per cent in 2010.

With over 80 per cent of organizations surveyed offering an incentive pay program for some or all of their employees, 69 per cent said they were unable to assess cost effectiveness of incentive plans against the level of performance achieved by the organization, team, or individual.

Nevertheless, responding organizations still believe their incentive plans were somewhat effective in achieving intended objectives, such as:

  • driving organizational or individual performance, or
  • linking individual and corporate results

The Compensation Planning Outlook 2011 survey showed that:

  • 54 per cent of organizations believed that their short-term incentive pay plans were effective or very effective
  • 42 per cent were ambivalent about the effectiveness of their incentive programs
  • 4 per cent indicated that their plans were ineffective or very ineffective

Corporate results are most commonly used to determine cost-effectiveness (97 per cent) among the organizations that did measure the success of their incentive plans.

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