It is apparent from research undertaken at the University of Limerick that financial incentive schemes are common practice in workplaces across Ireland – especially for managerial, professional\technical and clerical\administrative grades. This finding is substantiated by evidence from a host of recently reported private sector pay settlements and surveys, confirming that performance or variable pay is a popular people management practice. In fact, it has even been adjudged by the Labour Court to be a ‘condition of employment’ (LCR19684), though in 2012 the High Court held that an IFSC-based finance company had absolute discretion to award a bonus, though this discretion must be exercised ‘reasonably’ (2012 IEHC 10).

Incentive or bonus schemes may be described as arrangements for the provision of payments and rewards to employees that are related to performance. Whilst the objectives of such schemes vary, they normally include one or more of the following:

• To enable staff to share in the organisation’s success and to provide them with a direct incentive, thus increasing their motivation, commitment and engagement levels.
• To recognise past performance or achievements and encourage individuals and their teams to perform effectively going forward, thus reducing the necessity for direct supervision.
• To ensure that pay, rewards and perks are competitive enough to attract, retain and motivate staff.

Survey work indicates that the business case for such schemes is that they are self-financing and frequently structured with a higher weighting toward products\services with a bigger financial margin or profit. With so many industries driven by margins, bonus schemes reflect the requirement to deliver and cultivate a pay-for-performance culture that recognises and rewards the performers\achievers.

However, it is also true that if not designed and managed with care, incentive schemes can be counter-productive, costly and the cause of considerable conflict. For example, they can be perceived as unfair when earnings fluctuate through no fault of the employees, ineffective - where the employees have their own ideas about how much they want to earn and\or how hard they want to work – and inhibitors of teamwork whilst emphasising quantity at the expense of quality.

Hence to be effective these schemes must ensure that the participants understand what they have to do to be rewarded, how they will be measured and what they will receive for achieving the agreed goals. Once the scheme is in-situ, it is imperative that its effectiveness be continually assessed and that any changes thereto are promptly and clearly conveyed to those affected. The key considerations for effectiveness are that the scheme:

• Be self-financing and carefully designed to meet specific objectives.
• Provide for periodic reviews, enabling the scheme to be amended, replaced or discarded.
• Link effort (at individual, team, section\dept. and\or corporate levels) to the organisation’s objectives and to (meaningful) rewards for the staff.
• Be based on measurable key performance indicators and\or Specific, Measurable, Agreed, Realistic and Timebound (S.M.A.R.T.) objectives via the performance management system.
• Be run in a fair, equitable, consistent and transparent manner.
• Suit the employee cohort to whom they are applied.
• Be intelligible and manageable.
• Pay out when a demanding threshold of performance is met.
• Cap payment maxima to an appropriate level.

On introducing or revising the incentive scheme it will help if one:

• Assesses the applicability of the scheme. All employees whose behaviour has an impact on the organisation’s performance should be eligible for inclusion.
• Secures agreement about the scheme from those directly affected or covered by it. This may include negotiation, but certainly should extend to consultation and communication with staff on the scheme’s purpose, mechanics and implications for them.
• As a consequence of the negotiation, consultation and\or communication processes, the scheme should be customised to the audience and the rewards adjudged appropriate and attractive by this audience (i.e. by those to whom they apply). For example, incentives don’t always have to be in cash.  Vouchers (availing of tax relief provisions of €500 per annum per employee) are an option. Alternatively, some employers (and employees) prefer a points-based reward system, that enables the redemption of points against a menu of rewards.
• The public relations, communication vehicles or media used to publicise the scheme should be tailored to suit the individuals affected. For example, one might gainfully deploy the organisation’s intranet, email system, text messaging, team briefings, posters and ‘table talkers’ strategically located in communal breakout\canteen areas. It should also be gainful to create a ‘buzz’ around the new incentive programme, both at the launch and at key intervals on an ongoing basis. In a similar vein, the public presentation of prizes\awards won not only gives a sense of pride to the recipient, but demonstrates to all that the goals and associated rewards are actually achievable.
• Confirms responsibilities for the introduction, maintenance and review of the scheme. This must incorporate a comprehensive cost-benefit analysis.
• Pilot tests the scheme – to assess its effectiveness or otherwise, prior to a full roll-out.
• Integrates the scheme in the entity’s day-to-day operating processes (incl. performance reviews).

NOTE: DR. Gerry McMahon will deliver Legal-Island's Successful Negotiating Skills: Getting to Yes workshop on 20th September 2018 at the Radisson Blu Hotel, Dublin Airport. Learn more.