17 Words About Incentive Pay
I saw an interesting image on LinkedIn a couple weeks ago. It provided a colorful view of how people perceived certain words in relation to probability. The 17 words listed align incredibly well with common incentive plan designs.
A quick review of incentive pay basics.
· Minimum: Usually 85%-90% probability of achievement
· Target: Usually 65%-70% probability of achievement
· Max: Usually 10-15% probability of achievement
The following seem to align well with Minimum levels of achievement:
1. Almost Certainly
2. Highly Likely
3. Very Good Chance
These make sense to me. If I heard my CEO, sales leader or HR Business Partner tell me that 30% of my STI was almost certain to get paid out, I think I would depend on that. I would also be surprised and pretty disappointed if it didn’t get paid out.
The next group aligns pretty well with Target levels of achievement:
6. We Believe
These terms seem more optimistic about potential achievement than most Boards or CEOs I work with would consider “stretch” target goals. People hear these terms and think that they will only miss their payout 25-35% of the time. This is another situation where many people would be very disappointed if they didn’t “get their bonus.” But, if you ask the people at the very top, they will usually tell you that people shouldn’t expect to get paid on their bonus. If your target is communicated as probable or likely, or if someone on the management team says “we believe” we are going to achieve your target, but the underlying funding is fundamentally more difficult to predict, you have created a plan for disincentive disaster.
The following seem link to Maximums, and probability levels of 10-15%:
10. Probably not
11. Little Chance
12. Almost No Chance
13. Highly Unlikely
14. Chances Are Slight
Let’s be honest, that list is pretty depressing. It’s hard to motivate people to their highest potential with words like “almost no chance” or, “probably not.” When you tell someone that there is a 10% or 15% probability of achieving the maximum goal, only the truly optimists hear “you can do it!”
That leaves three that don’t fit our normal incentive models.
15. Better Than Even
16. About Even
17. We Doubt
These wishy-washy terms don’t communicate much about incentives or motivation and should probably (there’s that 70% word) not be used. Of course, that means that around 30% of the time they are fine.
Go back through your last couple of years of incentive plans, presentations, speaker’s notes and train-the-trainer documents. How often have you communicated the wrong thing with all the best intentions? More importantly, how often did you do it right? My guess is that those of you with effective incentive plans do this without realizing it, while those with regular trouble miss the boat more often than they realize.
What word or phrase do you use to communicate Minimum, Targets and Maximums? Have you found a phrase that worked at one company and failed miserably at another? When you look at this list, do you feel company culture or CEO personality change the perception of any of the words?