Rule 12: Five To One

Incentives: The Five To One Rule - Pay For Quantifiable Performance Improvements

Once Critical Job Factors and related Weightings have been determined (Rule #11), collaborate with specific workforce members to establish three levels of performance results: Minimum Standard, Goal, and Stretch Goal (or Business As Usual, Target, and Maximum, or similar terminology).

Once these levels have been determined, calculate the quantifiable monetary value of improvements in Revenue Generation, Expense Optimization, Productivity Gains, and Efficiency Gains, at both the Goal and Stretch Goal levels.

Every Critical Job Factor should, and can have Goal levels that show some advantageous Revenue, Expense, Productivity, and/or Efficiency impact on the enterprise. If they don’t, then their true “Critical” nature should be reevaluated.

In order to make performance incentive programs “self-funding” and of value to both shareholders, managers, and the workforce, the enterprise-wide budget or pool of funds dedicated for actual incentive pay-outs is recommended to be one-sixth of the total quantifiable Revenue/Expense/Productivity/Efficiency benefit at the Goal level of performance.

Thus, for every one dollar of Revenue/Expense/Productivity/Efficiency benefit, five parts (approximately 83%) should go to the enterprise, and one part (approximately 17%) to the workforce being paid incentives: the Five To One Rule.

Of course, specific circumstances and job/role requirements will adjust these percentages, especially where total compensation is majority-variable, or where job functions grow increasingly strategic and based on cumulative subordinate results. And, the timing of the ‘benefit’ must correlate to the timing of the incentives.

The bottom line is, however: if the enterprise achieves its desired results, you win. If the enterprise doesn’t, you don’t either.

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>>> Rule 13