Recruitment/talent Acquisition, Career Counselling
Compensation And Benefit Head
In Principle, ANY Compensation System/Model backfires IF it becomes the SOLE criterion.
The very fact that Incentive system came into vogue is because the CTC system was found to be inadequate [or 'backfiring', depending on how one views the consequence].
As you are aware, the overall compensation format/model, irrespective of the sector/domain, is a combination of CTC, employee-friendly allowances, incentives, etc.
Coming to your main query "Does the 'incentive culture' work without back firing?", we already have a CLASSIC example RIGHT NOW in the Banking sector.
All of us are aware of the recent CobraPost sting operation that indicts MOST of the well-known Banks of selling Insurance Products--which in-itself isn't as per Norms--along with UNRECORDED cash transactions. And, as per the RBI findings, the primary cause of the excessive focus on the Bank employees getting involved in selling Insurance products [when they should be focusing on the Banking part of their jobs] was HIGH INCENTIVES w.r.t. the Insurance products & targets thru Incentives [meaning excessive FOCUS on Incentives].
The only measure that I can see working with Incentives in-place will be when the Line is drawn reasonably & ethically--lower the limit-line, the business will get hit & higher the limit-line, the situation you described evolves. In a single word, I guess it will have to be "BALANCING".
19th May 2013 From India, Hyderabad
"We" has too much inclusiveness in your question. If a C&B specialist designs a specific incentive programme he/she will include only those criteria which needs to be incentivise and have special impetus. Determining compensable criteria in case of incentive is a specific exercise. You need to determine each year’s parameter based on each year business goal, priority and special initiative. In India most our incentive programmes are very much generalized prgramme. Organization focus on design aspect of the programme is very poor, many management team do not understand the use of incentive. Poorly designed incentive programme always confused employees and backfire.
Calculating incentive in total cash structure is not a bad idea but it should be communicated properly as target compensation. If it is a discretionary plan then needs to be written down in bold not with star and smaller front somewhere end of the plan documents. If you have disqualifying criteria please write it properly. The above banking/insurance sector example, if the sales process was unethical and intention of the plan was to follow ethical way than it must be written as disqualifying criteria for incentive payout or payback if it is already paid (commission) to employees.
The intention of any incentive plan must be to pay employees. Design a plan which employee will believe and get reward with right effort. Do not design a plan where employees will never qualify for payment. Nobody will believe on such plan.
Develop a specific communication channel for incentive related quarry and C&B is appropriate to handle such quarry. Do not dilute the employee’s relevant question with philosophical, ZALEBI type answer.
Give high importance on designing stage of the plan. Your half of the work done and it will never backfire. Another important point is to keep a scope of adjustment of target in case market collapse or turn around suddenly.
Many more things coming in mind, but I believe I have answered your above questions.
23rd May 2013 From India, New Delhi