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Season’s Greetings for Annual Incentives

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The business year has ended, but managers everywhere are turning their thoughts to receiving one last Christmas present. The calculators are out and every eligible soul from marketing to manufacturing to sales, IT, HR and the executive suite is trying to figure what their annual incentive check will look like. For some, it's still the gift-receiving season.


Year upon year, the same bad script repeats itself for this annual process: once again we'll see objectives created at the last minute, embellished accomplishments dutifully recorded, problems and shortcomings diminished or forgotten and the exercise of completing assessment forms treated with disdain.

More Than Mechanics Are Flawed
Most would agree that the process (performance + assessment = reward) is flawed not by design but by administration. Yet the foxes remain in charge of the chicken coop, offering little hope for reform. Because for those in charge the process works, and self-interest pays its own rewards. Every time.

As you approach the top of the organizational hierarchy, true pay-for-performance can become an elusive concept best remembered from Compensation 101 textbooks, suitable only for life as it should be, not as it is. Sad to say, but senior management is often the worst offender. I’ve seen senior executives adjust the interpretation of financial results to ensure that their own incentive awards aren't reduced. Senior staff deserves to receive competitive incentive rewards, don’t they? How can you not provide them with what they need?

Entitlement can and does trump performance.

While studies suggest that the “I deserve it” mentality has been reduced by the effects of a still struggling economy, I believe that it’s alive and well wherever rewards are viewed as payment due for time served, not for effort and results.

It can be an uphill climb trying to persuade leadership that it's primarily good performance that should provide rewards; that tenure isn’t a compensable factor, that incentive payments should be deserved, not simply an automatic gift of delayed compensation. Much is made of the principle that the rest of the organization is expected to earn their rewards; shouldn’t the same case be made for management?

End-of-Year Expectation
Have you ever suggested to an executive that their annual incentive award might be reduced because corporate or even individual performance didn't meet expectations? They'd look aghast at the possibility. I’ve heard from many an executive who became upset when reminded of the review process and that the Board of Directors had to approve awards. The common attitude was, “times up! – where’s the money?”

Will the situation be any different for the upcoming incentive cycle? How about in your organization? Because bucking the trend of human nature is far from a sure bet.

To change those dynamics, as well as the effectiveness of your incentive plans, you need to push a bit of pro-active initiative. With a new cycle beginning, it’s not too late to have an impact, to instill an actual management pay-for-performance philosophy in your organization — even if it's only taking one step at a time.

  • The performance appraisal form shouldn’t be an activity list of what happened during the rating period ("I was very busy"), but a focused statement of achievement against quantifiable objectives.
  • Let the assessment tell you the rating, not the other way around ("how do I fill out this form to give a 4 rating?”).
  • Ensure that the assessment form language corresponds to the performance rating (Hmmm, doesn't read like a "4").
  • Completed forms should be required before an incentive payment is made — negating a procrastination trick ("Just process the check. I'll get the form to you . . . soon").
  • Have annual objectives established early in the year, not in an after-the-fact rush at the end.

Not exactly radical thinking here, but more like common sense tenets that should be remembered.

You'll need more than a steely look and a waving flashlight to stop a speeding freight train, so educate management about these ineffective and wasteful practices before the cycle restarts.

Afterward is always too late; discipline as a learning tool is best used to prevent problems, not when hands are already reaching into the money bag.

About the Author

Chuck Csizmar Bio Image

Chuck Csizmar CCP is the founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant.

This article was first published at Compensation Café on Jan. 4, 2021.

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