The Dark Side Of Incentives

Do you see unfairness at the top?

In my experience, the too-frequent answer to the above question is NO, the top of the house did not share as much of the pay-at-risk repercussions as you did. For some reason, the rules of pay-at-risk are not as rigorously applied at the top as they are for the rest of the eligible population.  Now, why is that?

Leadership will tell you that they need to pay at competitive levels to attract and maintain high caliber talent.  And that competitive level includes incentive payments, regardless of company performance. They don’t want to lose anyone.  Chances are though, that there is a lot of high talent personnel at lower ranks as well – but no one has protected them.

What is left unsaid with this rationale is that there is often a double standard when it comes to calculating annual incentive payments. Management tends to take care of themselves, though they will never admit it as such.  Payment decisions that are meant to be based on measurable levels of performance suddenly become subjective and open to interpretation, though only for a select few leaders.  I’ve seen financial reports explained in ways guaranteed to protect senior management incentive payments.

I have also seen a company forgo executive merit increases (with great fanfare), only to grant additional rewards in the form of higher annual incentive payments – which more than replaced the lost merit monies.

Another client rated over 90% of its executives as performing either Above Average or Excellent, all while the company itself was floundering and preparing to sell off pieces.

Note to self: Check to see whether it is part of the company’s culture that at least a portion of an executive’s annual incentive payment is guaranteed. Not for you and me, but for the select few.

While the top of the house may be taking care of themselves it is highly unlikely that such duplicity will go unnoticed by the rest of the incentive-eligible population.  However, if the favored treatment also increases their own reward opportunities, then little will be said.  But more than likely “protected” incentive rewards will be limited to the higher levels of eligibility (VPs+), leaving the majority of us alone in facing the “risk” of pay-at-risk.

It's always a head-shaking surprise to me how senior leaders will believe that their incentive payment manipulations will remain a secret.  Such an eventual exposure would be very damaging to morale, as trust is more easily lost than gained.

Going up against senior leadership to expose their double standard would be harder for you than Atlas pushing that boulder up a hill – and not a career-enhancing move for you either. Be careful when attacking sacred cows.  Entrenched biases and a long history of such generous practices will likely shade your senior leadership from even seeing the problem – never mind addressing it.  Their defense will always be, among other excuses that of the need to provide competitive pay at senior levels, regardless of performance.  They will be blind to the double standard so obvious to everyone else.

Wouldn’t it be nice if your own incentive reward calculations didn’t have to depend on those pesky performance issues?

Sadly, there’s not much you can do other than to (politely) mention this incongruity to the CEO or other senior leadership, and highlight the likely impact on employee morale. Then step back and see what, if anything will happen.  

On the other hand, if you want to be an activist on this issue and poke the hornet’s nest, just make sure that your resume is up to date.