Newsletter: 2003 October Issue

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Newsletter

October 2003

Spotlight: First Aid for Short-Term Incentive Plans

Is your bonus plan feeling tired and run down? Is it stuck in a rut? If it’s any consolation, your plan is not alone. There appears to be an epidemic of short-term incentive plans desperately in need of some first aid (and in some cases, major surgery). In this article, we explore some of the common bonus plan ailments and how to diagnose them. ...more

This Issue: Queen’s IRC on the road: Will we see you at these fall conferences?...more Stock up your library: We have some freshly-baked documents to add to your HR pantry. ...more The Peaceful Principle: How can we transform negative history and build positive working relationships?...more Our prized subscribers: These are the lucky folks who won the big prize in the last month's newsletter contest. ...more First aid for incentive plans: Your organization’s short-term bonus plan is not gaining any traction. Now what?...more

Upcoming Programs All - Toronto- Regina - Halifax Sept. 21 - 26, Kingston Industrial Relations Register Sept. 22 - 25, Kingston Building Smart Teams Register Sept. 23 - 26, Toronto Change Management Register Sept. 30 - Oct. 03, Regina Dispute Resolution Register Oct. 07, Toronto Performance Management Essentials and Strategy Register Oct. 07 - 08, Toronto Compensation Clinics (Performance+Group Benefits Programs) Register Oct. 08, Toronto Employee Group Benefits Register Oct. 15 - 17, Toronto Business Strategy Register Oct. 19 - 24, Kingston Negotiation Skills Register Oct. 21 - 24, Regina Building Smart Teams Register

Queen’s IRC on the Road

Our traveling road show this fall will be stopping at the Knowledge Exchange Conference, put on by the Canadian Society for Training and Development in Toronto, and the HR 2003 HR Solutions Show in Ottawa. The Knowledge Exchange runs November 12 and 13 at the Metro Toronto Convention Centre. The HR 2003 event takes place Dec. 2 and 3 at the Ottawa Congress Centre. We hope to see you there.

For information on the Knowledge Exchange, go to: http://www.cstd.ca/conference/index.html

For information on HR2003, go to: http://www.smartcitysummit.com/HR2003/

Stock Up Your Library

A number of interesting articles relating to people management have recently been added to our web site, and are available for free download. United Steelworkers’ President Leo Gerard talks about the impact of globalization on labour as part of the Don Wood lecture series, Dr. Vince Molinaro discusses an IT change project in the Ontario public service, and Mark Alexander explores employee performance management in a union setting. And the Queen’s IRC 2004 Program Planner is available for download.

The Peaceful Principle

How can we transform negative history and build positive working relationships?

It’s important to know what characterizes peaceful relationships, and how to move parties in conflict toward this model, says Christopher Moore, managing partner of internationally respected conflict management firm CDR Associates. In this excerpt from State of the Art and Practice in Dispute Resolution (IRC Press), Moore –who teaches mediation skills as part of the Queen’s IRC Certificate in Industrial Relations - discusses principles and approaches to restore workplace peace.

Several years ago Adam Curle, a Quaker academic who also acted as an intermediary in several international disputes, wrote a groundbreaking book in the field of dispute resolution called Making Peace (1971). Curle identified several characteristics of a peaceful relationship.

First, each person involved must have an opportunity to develop his or her potential to the greatest extent possible and so must each group, but not at the expense of other people or parties. This principle can be applied to labour-management relationships. The broadest goal for a collective agreement should be a relationship in which both parties are able to meet as many of their individual needs as possible without damaging the other side. It should also lay the foundation for a relationship of trust and respect.

Second, the relationship should be characterized by both perceptual and actual justice and by fair treatment. Perceptual justice is critical. I have mediated several conflicts and have seen solutions proposed that looked fair and reasonable to me as an external, impartial mediator. But, to the parties they looked outrageous and very unbalanced. While we should be committed to and work toward agreements that are fair by any objective standard, we must also strive to develop settlements that are perceived to be fair by the parties.

Third, the relationship should be characterized by respect for the person, if not the views that she or he holds. Gandhi would talk about it as hating the sin and loving the sinner.

Finally, the relationship should be moving toward a condition of trust. Trust means that you are willing to look out for the interests and needs of the other and to believe that they are doing the same for you. It means that people will follow through on agreements in good faith and execute them in the same positive spirit in which they were made.

If these elements are the characteristics of peaceful relationships, how can we begin to move parties in conflict toward these goals? What are the general approaches and specific steps we can take to achieve the goal of peaceful relationships?

General Approaches

In general, there are four major approaches for building peaceful relationships and transforming negative past histories. We can change

1. the beliefs and attitudes that the parties hold toward each other and various aspects of the conflict,
2. the behaviours and skills people use to resolve differences,
3. the procedures and steps used to avoid defeat or achieve resolution, and
4. the structure of the parties’ relationships (structurally prescribed interactions, roles, and rules).

The first approach involves changing negative beliefs and attitudes and promoting positive ones, which entails changing how people look at a conflict situation and the issues and at others who are involved, the relationships and what is possible in the future.

Second, several conflicts are caused either by the way people behave or by a lack of effective skills in conflict regulation, management, or resolution. Negative conflict behaviour fuels and promotes divisions between people, and the lack of effective communication and problem solving skills inhibits the creative resolution of either past or current differences. The issue is how to stop negative behaviour, promote positive interactions, and teach new skills, so that people can be more effective problem solvers.

The third approach involves changing the procedures and steps used to address past, current, or future conflicts. Changing the process and the sequence of steps can often have significant impact on how we perceive past conflict and how historical issues are addressed.

The fourth approach is to work on changing the structure, which is related to the roles, rules, resources, and broader interaction patterns of the parties. Changing the structure of the relationship of conflicted parties is frequently a critical component for achieving long-term positive change.

As we examine these four approaches in more detail, we need to keep in mind that sustainable changes toward peaceful relationships may require shifts in more than one of these sources of negative attitudes and interactions. For example, if we improve peoples’ behaviours and skills but do not change their beliefs and attitudes, we will probably see little difference in their relationships. Usually a concerted, multifaceted effort will be required, even when one area may be the source of major problems or may be the easiest or most appropriate place to start.

Fit To a Tee

Congratulations to the following people who won a Queen’s Industrial Relations Centre tee-shirt in last month’s e-newsletter contest: James De Hoop, Sandra deLean, Renée Dover, Roy Ecker, Shannon Ferris, Jean-Claude Provost, Linda Strandlie, Kevin Sawicki, Cyndie Kaufman-Sinclair, Cindy Talbot.

Spotlight
First Aid for Short-Term Incentive Plans

By Jackie Goldman of Toronto-based Buck Consultants and Arden Dalik of Calgary’s RainTree Consulting.

Is your bonus plan feeling tired and run down? Is it stuck in a rut? If it’s any consolation, your plan is not alone. There appears to be an epidemic of company
short-term incentive plans desperately in need of some first aid (and in some cases, major surgery). In this article we explore some of the common bonus plan
ailments and how to diagnose them.

There are seven key design features which determine, in large part, the potential effectiveness of the bonus plan.

1. Alignment with Business Strategy and Culture

• Does your bonus plan support your current business strategy?
  As obvious as this may seem, it is amazing how often STIPs can be reinforcing an “old message” to employees.
  
  
• Is the incentive plan viewed as ONE driver of business strategy versus the cure for all organizational evils?
  Oftentimes, executives believe that all they need to do is implement the incentive plan and business performance will take care of itself. In practice, quite the opposite situation can occur. Employees quickly realize that they are not able to earn their incentive awards because other critical strategies and processes haven’t been designed or implemented. The result can be frustration and deteriorating performance.
  
  
• Has the culture of the organization been reflected in the STIP design?
  A company that demonstrates trustworthiness, openness, and respect for employees stands a much better chance of reaping the organizational rewards of an effective incentive plan.

2. Economics of the Plan: Can You Afford It?

• Has the plan funding been carefully calibrated?
  Many incentive plan designers without a solid grounding in finance neglect to do the proper analysis to ensure the design can stand up to rigorous financial tests, such as self-funding. While often incentive plans are not self-funding “out of the gate,” all should aim to be after a certain length of time (usually two to three years)

3. Performance Metrics: Figuring Out What to Measure

• There are many considerations when it comes to selecting performance measures for your plan. Are the following considerations reflected in the design of your program?
  
  1. The use of a “balanced” group of performance measures: Regardless of whether a company uses a “balanced scorecard” or a more formula-based approach, it is critical that the incentive plan incorporate a variety of measures. Measures which encourage short-term profit (e.g., increased production volume) need to be “balanced” with those that ensure future value is simultaneously created (e.g., property rationalization).
     
  2. Cascaded performance measures: Corporate goals are aligned to business unit goals, which are then linked to team goals, and are finally linked to individual goals. This way, employees at all levels of the organization are able to see how their job and their performance help to drive business strategy.
     
  3. “Line of sight”: Employees should be able to have some impact on the performance measures used in the bonus plan. While simplicity in design helps to illustrate “line of sight,” rather than targeting the bonus plan measures “down” to the lowest level of understanding, employees should be educated in the performance metrics and shown how their role can have an influence on the outcomes.

4. Formula/Scorecard: Keep it Simple

• How complex is your current bonus formula?
  The rule of thumb is to keep the plan design as simple as possible. Typically, everyone involved in the initial design process starts out with the objective to keep it simple. However, as the design process unfolds and details about the business strategy and objectives come to light, a desire to capture everything the business needs to accomplish emerges.
  
  Using the balanced scorecard methodology as the foundation for incentive plan design can facilitate this process. The strategy map (or “story”) makes the linkages between performance measures much more clear to employees. Then, the incentive plan isn’t merely a compilation of measures, but rather another powerful vehicle for communicating business strategy.
  
  
• Is there a high level of award differentiation between strong and weak performers?
  Many managers continue to be uncomfortable with the concept of differentiating pay based on performance. Typically, this is because managers are not equipped with the skills or training required to coach an employee through the performance improvement process.
  
  This situation is often exacerbated by the incentive plan design as many plans do not provide sufficient reward differentiation for superior versus poor performers. Even when incentive plans do incorporate the ability to differentiate rewards, many managers gravitate to the middle when assessing individual and/or team performance.
  
  Research has shown that this reluctance to differentiate rewards based on performance can have an extremely negative impact on the ultimate success of the incentive plan.

5. Participation

• Plan participation is an important consideration. Companies have been pushing their bonus plan participation further down into the organization. You will need to examine marketplace practices as well as organizational culture to determine whether your bonus plan participation or eligibility is appropriate. The degree of risk that employees can tolerate or desire is an important consideration when determining the organizational levels to include in the plan.

6. Leadership Commitment: Walk the Talk

• Have your leaders “bought in” to the bonus plan measures and objectives?
  Often, bonus plans end up being driven by the Human Resources department (or blamed on HR when they are not working). In order to utilize the bonus plan as a strategic business tool, it must be universally seen as ‘owned and valued’ by the leaders of the organization.

7. Communication and On-going Monitoring: Transparency is Important

• Did employees receive communication before, during and after the incentive plan was implemented?
  Many organizations employ a “black-box” approach to incentive plan design and then wonder why employees are not enthusiastic about the program when it is rolled out. By opening up the bonus plan process (e.g., measures, distribution process, link to individual performance) to employees, trust and support is built for the program.
  
  Even if the STIP was not well communicated initially, there is still an opportunity to enhance the effectiveness of the program by establishing a communication process for tracking progress or illustrating the link to the business strategy.
  
  
• Were challenges associated with gathering, tracking, and reporting potential performance measures recognized and addressed early in the implementation process?
  Finance and systems people should be engaged early in the project so that they had sufficient time to put the necessary processes in place. Otherwise, the result may be disappointment, frustration, and failure of the plan rollout.

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