The other week I received a lottery card as a gift. I had to scratch off two sections and, if I had any matching numbers across sections, I would win the listed price. I could win anywhere from $2 to $10,000, and if I found a 5x multiplier, the maximum prize was $50,000. Not surprisingly, I didn’t win anything.
I thought of my lottery card the other day when I read an article about the year-end bonus that was given to every employee this year at Hilcorp, a privately held oil and gas exploration and production company based in Houston: Each of the company’s 1,400 or so employees received $100,000.
To some, that bonus likely would be the equivalent of winning the lottery. And if media reports are correct, the Hilcorp bonus was more like an incentive than a traditional bonus—or maybe it was a combination of the two.
The definition of a bonus is that it’s an amount of money added to wages on a seasonal basis, especially as a reward for good performance. A typical condition (although not a rule) of a bonus is that the exact amount is not known in advance. Meanwhile, an incentive is defined as a mechanism to motivate or encourage one to do something, or a payment or concession to stimulate greater output or investment.
In its story about the Hilcorp payout, Fortune.com stated, “The company told us earlier this year that if employees meet certain goals, that every one of them would receive a generous $100,000 bonus.” That sounds a little like an incentive plan: It had a goal and a predetermined reward to stimulate greater outcomes.
If this were a sales incentive plan rather than a general employee incentive plan, it would be a goal-based plan, with (perhaps) no payout for employees who failed to achieve the goal and a flat payout of $100,000 for those who met or exceeded it. With no additional upside opportunity, and equal earnings for all regardless of contributions, the Hilcorp payout may not be a great incentive plan for salespeople. They’re going to get paid the same amount of money regardless of their effort.
BLOG POST: Motivating Beyond Money
When designing compensation plans, we’re often asked, “Should we use an incentive plan or a bonus, or both?” When we think of sales incentives, we generally consider at least three factors when determining whether and how much sales compensation would be appropriate:
- Is the employee involved in a selling role? If so, he or she may be driving revenue or profit within the company and a sales incentive may be appropriate.
- What level of control does the person have over a sale? If the level of control is high, meaning the person has a lot of influence over the buying decision, a sales incentive can be used.
- What’s the frequency and length of the sales cycle? A longer selling cycle can decrease the amount of at-risk pay, unless the sales process can be broken into smaller, measurable milestones to which incentives could be assigned. This may be necessary to ensure that the sales rep is able to support himself or herself during an extended sales cycle and between sales.
While the employees of Hilcorp may be participating in a hybrid incentive-bonus plan, it’s obviously not a sales incentive plan. That being said, the strategy has plenty of upside. If the compensation plan is designed to attract, retain and motivate employees—and if the media’s interviews with the company’s employees are any indication—Hilcorp likely is succeeding, and I suspect that the company is seeing a sudden surge in job applications, too.