80% of Canadian organizations use short-term incentives; few measure their effectiveness

Four in five Canadian organizations surveyed by The Conference Board of Canada offer employees incentives – such as variable pay, performance bonuses, and annual incentives – to motivate them to achieve performance goals. However, most organizations using these types of plan do not measure the effectiveness of their programs on organizational results, according to Making Short-Term Incentives Work for Your Organization.

“With so many organizations rewarding employees with incentive pay, organizations need to do a better job of finding a link between pay plans and business results, to ensure they are getting value out of their incentive programs,” says Karla Thorpe, associate director, compensation and industrial relations.

In the recently released Compensation Planning Outlook 2011, organizations indicated that they expect to spend  on average 11.6 per cent of total base pay spending on short-term incentives, a slight increase from what they planned for 2010 (11.5 per cent).

More than 80 per cent of the Canadian organizations surveyed had an incentive pay program in place for at least some or all of their employees. However, 69 per cent indicated they were not able to assess the cost effectiveness of their incentive plan against the level of performance achieved by the organization, team, or individual.

Although most organizations find it difficult to measure the effectiveness of their plans, they still believe these plans are somewhat effective in achieving their intended objectives, such as driving organizational or individual performance, or linking individual and corporate results. The Compensation Planning Outlook 2011 survey found that about half (54 per cent) of organizations believe their short-term incentive pay plans are effective or very effective. While 42 per cent are ambivalent about the effectiveness of their incentive program, and 4 per cent indicated that their plans are ineffective or very ineffective.

Among organizations that measured the success of their incentive plan, corporate results are most commonly used to determine the plan’s cost-effectiveness (97 per cent).

The Conference Board of Canada conducted its survey of mid-sized and large Canadian organization between January and May 2010. Making Short-Term Incentives Work for Your Organization summarizes the responses from the 130 organizations that indicated they had at least one short-term incentive plan.

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