Incentives: encouragement to productivity

In addition to the salary, in Mexico, some companies also provide some benefits that Guillermo Sander and Jorge Ponga, general director and consulting partner of Hewitt Intergamma, have called complementary remuneration. This is divided into guaranteed (which the employee receives for the simple fact of being one) and variable (which includes profit sharing and income from the results of the company or the executive himself).

"There are usually great differences in the way of granting incentives between the different productive sectors, in addition to the fact that in each one of them there are exceptions that are sometimes too important. The agribusiness sector almost never has these types of programs, while the industrial and commercial sectors tend to use them more," says Sander.

According to data provided by Jorge Ponga, of a sample made up of more than 300 multinationals established in Mexico, 73% grant bonuses to their executives, and only 18% offer stock plans. On average, per year, a general director receives up to 116 days of salary, first-level executives receive 440,000 pesos or 27% of their salary, and in some cases, this compensation is extended to second-line executives. The criteria of 93% of the companies to grant bonuses are directly related to the performance of the executive, 47% with the results of the business in Mexico, and 15% with the profits of the company in the world. Many multinationals assume that, even if a business goes bad in one country, their executives should enjoy the company's profits on a global scale.

"At 3M we have 20 years of experience in variable compensation: we were pioneers in Mexico."

A manager can additionally earn up to 25% of his annual salary for incentives because it is closely related to the company's strategy. At the managerial level, 20% is granted and at the other levels the incentive can reach 15%", says Germn Surez, director of human resources of the company.

Mara Teresa Maldonado, administrative and compensation manager at Ceras Johnson, comments: "In the case of executives, we have had a results-based bonus plan for more than 13 years. An executive can obtain more than 25% of his annual salary if he exceeds the planned objectives".

According to Hewitt Intergamma consultants, in Mexico, the percentage of variable perception that an executive can obtain can be from 20 to 30%. In developed countries, the percentage can be much higher, as is the case in the United States.

According to Sander, far more executives receive cash awards than receive company stock. Stock plans are viewed as long-term incentives and typically include only top management and a few key senior executives.

It is not an easy task to design an incentive program for administrative personnel, because the relationship between the results of individual work and those of the company is much more difficult to measure. The types of programs for this level are related to the results of the company or the people being supported. The average amount of this compensation for administrative employees is 31 days of salary per year.

"Sometimes, the criteria for distributing the individual amount per executive are based on aspects that are difficult to measure: improvement of the company's position or image in the market. In addition, these improvements can be affected by external variables that do not refer to the capacity of the executive", concludes Sander.

"Part of the success of an incentive is that, first, you have a lot of objectivity to qualify it. Second, it should be very easy to understand and explain, and third, it should be very easy to show that the person who wins it has a direct impact on the results of the company", says Surez, who, on the other hand, believes that in the operational sphere, the collective achievement is difficult to evaluate, but individual achievement is the easiest to perceive.

Sander believes it's important to first determine what needs to be improved, and then see if incentive programs can be a real part of the improvement. "For a productivity program to work you first have to pay decent wages and many companies still don't understand this."

After reading this; 1. Can complementary remuneration be effective in encouraging employee productivity? 2. Point out the advantages and disadvantages of variable economic incentives. 3. Considering the difficulties in measuring improvements in administrators' performance, what should an incentive plan be like for this type of staff? 4. What other alternatives would you recommend to motivate or incentivize employees?