It takes more than just money to motivate workers. The Harvard Business Review (HBR) Article “Why Incentive Plans Cannot Work” cites six reasons why monetary rewards fail (see Appendix). It argues first that “pay is not a motivator” and second that rewards: punish, rupture relationships, ignore reasons, discourage risk-taking, and undermine interest. When analyzing Visionary Design Systems (VDS), a company whose founding beliefs lie in aligning employee actions with those of the firm through stock options and complex incentive plans, it becomes clear that the recent lack of success in the company’s new Product Data Management (PDM) division can indeed be attributed to flaws in its incentive plan.
First and foremost, VDS’s newly devised incentive plan for PDM employees falters because it ignores the reasons underlying the division’s problems. VDM has found that clients repeatedly buy the PDM software, but do not install or learn how to use the complex system, costing VDM potential profits since the consulting and training provides 80% profit margins. In order to address this problem, VDM management changed the incentive program to reward only consulting activities. Not only did altering the incentive system act as a punitive rather than incentivizing measure, as employees were accustomed to the previous incentive program that was based on PDM sales rather than consulting services, but also it closed up dialogue between upper-level VDS management and PDM managers. Instead of speaking with PDM management to address the problem head-on, VDM upper-level managers expects PDM employees to “act like owners” and solve the problem without any support. Gerald Stark encapsulates management’s thought process and reasoning: “We set up compensation plans that provided major incentives…We expect empowerment to mean that we don’t have to manage it.” Instead of speaking with PDM employees to develop a working dialogue and relationships to resolve issues, upper-echelon...
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