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March 27, 2010
Expert: Resist the Temptation to Cut Incentives in a Bad Economy

In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman provides steps and recommendations organizations can follow in managing incentive pay plans. One of his reccommendations is to resist the temptation to cut the incentives if the economy gets worse. He states that slashing your employee incentive programs may seem a simple way to trim ‘fat’ and improve your bottom line quickly, but this would be a bad idea for the following reasons:

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    Numerous studies have shown a negative impact through lower productivity, decreased sales and profits, and higher turnover when organizations pull back on incentivizing their workers
  • A Towers Perrin study found that employers with the highest shares of engaged workers showed operating income gains of 19 percent year to year, compared to operating income declines of 33 percent year over year for employers with the lowest percentages of engaged workers

Dan Kleinman is the principal of Dan Kleinman Consulting, a California-based compensation and human resource consulting firm. He can be reached at

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