Improving the system of remuneration by KPI. Bonuses in projects

That's common when companies, having developed a system of remuneration based on KPIs, subsequently update only the planned values. In this case, the system loses its effectiveness and becomes a formal tool, for the support of which the organization spends its resources: human, time, and financial, but does not receive the expected result.

It becomes necessary to update each year not only the target values, but also the goals with KPIs. Hold a strategic session annually to develop the objectives of the company, and then decompose them, both temporarily: based on the 3-year goals determine the goals for the next year, and structurally: based on the goals of the company develop the goals of departments, departments and divisions, and then the employees.

Many companies still do not decompose goals and reward managers and employees for achieving the financial goals of the company if they are achieved. Such a remuneration system is unlikely to motivate employees, because the lower in the hierarchy an employee's position is, the less influence it has on business results. Even if a department head or an employee is productive, competent and works 10 hours a day, he is unlikely to affect the company's goals (the situation is different with top managers and small businesses), which means that such remuneration will not stimulate him to work more efficiently.

Thus, it is important to update the goals, KPIs, to decompose them, as well as to coordinate and integrate them. Coordination is needed to improve the interaction of departments with each other. And integration is necessary for greater employee engagement and the successful implementation of a remuneration system.

Based on 10 years of experience I recommend to use BSC methodology to develop balanced objectives (BSC), then in your compensation table you will have not only financial goals, which according to foreign companies research is not effective, but also client, process, and goals related to personnel development and training, corporate culture. In this case all goals of 4 components will be interconnected with each other and we will be sure, for example, that implementation of the goals for development and training of employees will lead to achievement of financial objectives of the company.
What else can be done to improve the effectiveness of your existing remuneration system? Take a systematic approach. Consider that "the global optimum is not the sum of local optimums. It is impossible to receive the most effective system by maximization of efficiency of all its components separately, without taking into account their interaction among themselves". (E. GOLDRATT) .

That is, we will not get results if we reward managers only for local goals and do not coordinate the goals of units among themselves. We will not get a result if we implement a reward system in a single unit, for example, only in the sales department, unless that unit is a constraint on the business.

Therefore, first of all we have to identify the constraints for the business, as well as identify not only the problems, but also the key causes of problems that exist in the enterprise and take them into account when developing goals, prioritizing and then in the remuneration system. In the remuneration system we cannot tie up all the goals, processes, actions with which the employees work to the remuneration system. It is necessary to choose the most important and those that are a limitation for business development.
Remuneration system in projects

It is even more difficult to develop a KPI-based remuneration system for project divisions or remuneration for project managers/participants. So far, the most common option is to award bonuses for completing the project on time and depressions for falling behind schedule.

But with this type of remuneration, employees have no motivation to complete the project with good quality, without errors and rework, and also to meet the required budget. So when project deadlines start to run out, managers have a bunch of excuses why they can't deliver the project on time. As a result, they have to ask employees to stay after hours or work on weekends, and then pay them overtime, which leads to an increase in the budget ( costs).
So, the main KPIs for project activities: deadlines, project budget, quality. How to correctly calculate the performance of managers and employees, so that the system remains simple and understandable for them?

Then there is the question of when to pay a bonus, if the project takes 4 or 8 months? Annual bonuses are often used, which are not very effective because they are delayed.

Bonuses in the projects should be paid directly (next month) after the project is delivered and the calculation of performance on KPIs, because, according to studies, the shorter the period between the result and the incentive, the greater the effect of motivation.
But do not forget about the annual bonus, which depends on both the financial results of the company, and the performance of the head / employee.

Elena Vetluzhskikh, author and course presenter