Don't you believe it ... That incentives do incentivise

They might create changes in behaviour, but not in ways you want.

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Last Updated: 31 Aug 2010

Large incentives encouraged bankers to destroy the global financial system in return for huge bonuses, which they still haven't paid back. In your business, the damage is unlikely to be as bad, but consider whether incentive plans make sense.

Incentives can be 'gamed'. There was a principle in economic management that said that any measure of the money supply would, if adopted as the official target, become useless: banks would find a way of expanding the money supply while reducing the measure chosen. It's the same with incentive plans. Promote current-year profitability and managers will slash investment. Promote growth and watch profitability and strategic focus go out of the window.

They are individual - but results are produced by teams. Sales makes its targets by offering delivery dates that cause huge problems for manufacturing. Manufacturing meets its cost target by scheduling long production runs that make it impossible to serve customers promptly, or by building huge stocks that undermine finance's efforts to manage cashflow.

You can't afford them. The next two years will be difficult, and organisations will need to work harder than ever to keep staff happy, motivated and productive. So just when you could use an incentive plan, you don't have any money for one.

The most important things people do in their lives (bringing up children, caring for parents, supporting others in the community) aren't done for cash. Smart managers know that non-financial rewards such as recognition, praise, personal growth and harmonious relationships produce results that money never can.

Alastair Dryburgh is head of Akenhurst Consultants - www.akenhurst.com

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