The statement ‘Don’t pay people for things you don’t want them to do’ might seem obvious, right?

Think about this from the perspective of your compensation and bonus plans.

We all know that they are absolutely critical for recruiting and maintaining good folks in an organization.

However, the adage Compensation drives behavior is true.

Don’t Incentivize Undesired Behaviors

This may be difficult if you don’t understand your organizational goals and objectives.

So, start with understanding your strategic direction.

This gives you a baseline to plan for the exact behaviors you are trying to encourage.

Beware the Law of Unintended Consequences

This law states that the actions of people always have effects that are unanticipated or unintended.

While setting up a compensation and bonus plan, beware of this law. If you want your sales team focused on adding new customers, don’t pay high commission rates on anything but new customers.

Guidelines for a Compensation Plan

A good compensation plan needs to be S.M.A.R.T.

Specific

Goals must be very specific. Use numbers!

Measurable

Results must be measurable. For instance, we want 90% of our customers to renew their agreement is a much more measurable target than we want our customers to be happy.

Achievable

Having numbers is only good if it’s achievable. Unachievable numbers can lead to unmotivated employees.

Relevant

Compensate only what someone has control over.

Time-Bound

It’s important to reward behavior as frequently as possible. For instance, use monthly or quarterly compensation plans, as opposed to “back loaded” or annual plans.

In summary, a good compensation plan should be set up only after understanding your strategic direction and goals. This will help you avoid paying people for things that you don’t want them to do. After all, compensation drives behavior.