In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman discusses how organizations can handle incremental or ‘all or nothing’ incentives. Kleinman states that the employer should consider the relative pros and cons of using either of the following types of incentives:
- incremental incentives, in which workers may earn 0 percent to 100 percent of the promised reward, based on how close they come to achieving their performance goals
- ‘all or nothing’ incentives, in which workers must hit their target completely to earn the full reward or go away empty even if they achieve 99 percent of the target
One good rule of thumb is that ‘all or nothing’ incentives usually work best with individual employees who will probably not face significant obstacles outside their control to hit their goals, whereas incremental rewards may be a better choice for groups with whom a single ‘bad’ worker or events outside their control may sabotage their efforts.
Dan Kleinman is the principal of Dan Kleinman Consulting (www.dankleinmanconsulting.com), a California-based compensation and human resource consulting firm. He has served as an independent consultant for a broad spectrum of regional, national, and international companies, providing compensation, performance, organizational planning, and reward-system design services. He can be reached at firstname.lastname@example.org.