I do not have any experience specifically with incentive plans for Accounting personnel, but here are some general guidelines to consider when designing an effective incentive program (as outlined by SHRM)
-Specify and measure performance - measure and reward what is important, measure results (i.e., productivity, quality, attendance) and behaviors (i.e. returning customer phone calls, accuracy of work. Both results and behaviors must be under the employee's control. Decide whether focus is on short-term or long-term objectives.
-Determine the level of aggregation for the Reward (i.e.,Individual employee, work teams, department, organization as a whole).
-Specify the type of reward - must be valued by employees, clearly linked to expected results or behaviors, proportion of at-risk pay (increases as employees move up the organization).
-Gain employee acceptance - clearly communiccate plan, treat employees fairly, get employee input in design of plan, reward should be given soon after the desired performance is achieved.
I hope this information is helpful.
You could try setting a team goal with a target of cash generation, cash flow from operations or working capital. These goals are better for Finance people since they don't have the conflicts that earnings may have.
Like any good compensation plan, I would set an earnings or cash flow quailifier so that if the company does poorly, no payment is made but if the company does well, the employees share in the success.
Good points, Lisa and Lyle.
Kim, you might also want to take a look at this other discussion here on Proformative:
"KPIs for the Accounting Department & Finance Department"
And, this free white paper that get to some of the same issues, titled:
"Preparing Audit-Ready Financials: Best Practices to Avoid Common Pitfalls"
Some of the performance criteria for accounting personnel can be A/R collections (DSO ratio - overall or by customer groups), A/P timely payment or specific days target depending on corporate goal, early payment discount utilization, error rate per number of transactions processed, monthly closing days (avg or each mo). Criteria does not need to be static, as long as it is communicated well and with enough notice to employees. I agree with the idea of earnings/cash flow qualifier so employees are cognizant of company level performance which ties to teamwork with other departments.
I have used DSO improvement which is easily measured and improves overall cashflow (a common overall Corporate goal for any organization.
Another measureable goal is days to close for month end reporting.
I have also used a small spot bonus incentive around successful completion of year end audit work without incurring additional fees, beyond the original quoted engagement letter. This encourages upfront completion of audit workpaper, accuracy of year end close, and encourages overall cooperation with the external audit firm (I have also found it encourages my team to push our auditors to ensure they stay on the original timeline as well).
Whatever the incentive I have found it is best to ensure there is an agreed upon measureable result. When that is the case the employees self manage toward that goal because they know EXACTLY what is expected.
Depending on size of the potential bonus payout I agree that some percentage of the payout can be tied to the individual or department goals with another percentage being tied to overall Company performance (EBITDA, Revenue, Cash flow, etc)
I've set up quarterly incentive plans before for transactional/reporting accounting staff based on equal weighting on 5 criteria (20 points each):
1. Complete monthly billing on time (5th calendar day)
2. Meeting monthly reporting deadline (5th business day)
3. Meeting quarterly recon reporting deadline (20th calendar day)
4. Internal controls compliance and improvement (somewhat subjective measure)
5. Progress on special projects
The final score is multiplied by the total potential incentive bonus amount to determine the actual payout.
Won't work for many individuals but this might get some ideas flowing.
Incentive monetary rewards for your Accounting staff needs to be quantitive for easy tracking by staff. I have established collectively with my AR staffs on DSO goals. What made this acceptable was the goals were posted at the beginning of each month and updated weekly as a month to date figure. This way the staff could monitor their success during the month. AR staff had assigned customers that each were responsible for. In fairness I adjusted their DSO calculation for customers accounts beyond their control (bankruptcy, extended payment plans, special extended terms...)all items beyond their control.
Rewards were dispensed by the third days following the monthend. Immediate payouts are essential, quarterly payouts may cause loss of focus in the first month.
Incentives can be given for meeting or exceeding the monthly closing schedule that would be published a week prior to the month end.
Also in the past I have had small token incentives that I could distribute for any special performance or accomplishments no matter how small. I would immediately give these out and would include items such as gift cards for car washes, Amex, Dunkin Donuts, Spa and items of that nature. The immediate recognition was always appreciated and went a long way for building and maintaining morale.
I hope these ideas help you.
Financial recognition is fine, but it's well documented that what people really value is recognition (the public kind). Money is down the list, so is great as a sweetener, but recognition is a must. Some mangers use financial incentives as a way to get out of doing recognition, because legit recognition is harder. But that's why it's valuable. Don't fall into that trap.
It is fairly obvious that each departments goals must support the company's overall company's goals. What is not obvious sometimes how directly department goals support the company goals and much more so when it comes to G&A departments like Finance. However, once you have this key principle in mind you can delve deeper to develop the right goals
Here's an example.
If the company goals is to profit margins by 5%, a possible accounting goal is to pay reduce late fees by $XXX by paying invoices on a timely basis. If one of you staff is a A/P clerk you can assign that goal and a specific dollar amount. Or as one of the folks above mentioned, if you have an A/R department you can tie back to timely invoicing by a specific date.
I agree with all the above so I would just add some of the ancillary benefits to these plans and also some cautions to watch out for or address in advance.
I agree public recognition for good work is probably first and foremost to many employees, and can be basically free or low cost for the company to administer. In addition to motivation this also helps to improve employee self confidence.
It can get the department or company into the continuous improvement mode which I think is key to overall success of companies these days and failure to reward employees for this results in employees not motivated to make any improvements, especially at lower levels where they cannot see the impact on bigger picture.
Another impact from this can be good and bad. Creating competitive environment among employees is good to a certain degree, but you must be careful to not go overboard where employees are working against each other to compete for award, since this can actually backfire and result in decreasing overall efficiency, or decreasing quality of work in the race to increase work quantity to goals.
So I think it is important to make sure the quantity goals also include quality requirements, for example on processing quantities of A/P or A/R, that should be measured on error-free quantity or reduced by rejected or corrected items, because you don't gain anything by processing more faster if they must later be re-worked, essentially increasing the processing time vs. decreasing as planned.
Since this can also sometimes cause employees to become too competitive where they actually undermine co-workers, one way to maintain the harmony is to add a reward for the most helpful co-worker as voted by peers in and outside of dept, essentially a reward for good customer service with internal/external customers so employees maintain that teamwork spirit along with friendly competition.
Just 2 more cents to add.
Some of my comments may be duplicates of those made by others, but … I have a good deal of experience in the area of goal setting and incentive plans.
Of primary importance is (1) determining your desired outcome – what behaviors do you want to drive, (2) keeping it simple enough for each participant to understand both the goals and measurements and (3) basing results on objective measures such as published financial statements so there is no ambiguity.
Typically I would start by defining target areas that tie to the goals of organization as a whole and then the high level goals of the finance department (these might be or include your goals). Answer this question – “What do we look like when we are successful?”
Use grouping similar to this:
(1) Corporate (divisional) – this should agree to two or three key measures of overall organizational success – Revenue, profit, etc. Often each department in an organization shares these goals. Measurement of these goals should be based on published results that are readily available (financial statements, etc.).
(2) Finance department – these should be tailored to the type of shop and challenges your group faces … I have found that for accounting/finance these generally fit into the categories of timeliness and accuracy. A third category can be added for specific projects if appropriate.
a. Timeliness – books closed within 5 days of the end of the month, average transactional turn around time, backlog of transactions, etc.
b. Accuracy – documented error rates, accounting adjustments, etc.
c. Projects – implementation of GL upgrade before end of Q3, etc.
(3) If your group is large enough you could add one or two sub department goals, example specific AP goals for payable processing unit, etc.
A percentage mix should be set for each of these (corporate = 50%, department = 25%, sub-group=25%)
Individual – Often I have used individual performance as a modifier based on annual performance appraisals – individual performance against set goals. For example the results of goals 1-3 above are adjusted up if annual individual performance exceeds goal or vice versa.
(1) Avoid an “all or nothing” scenario, whereby your staff’s whole year can be ruined by one bad event. For example, if it becomes clear in Q1 that the plan will not payout your plan is dead. Therefore you should consider including some level of payout in the plan that can be driven by qualitative performance.
(2) Consider setting ranges for measurement and payout - target, maximum and minimum – for example if your profit goal is $40m, you would pay 100% of goal at $40m, and nothing if less than $20m (minimum), but up to 125% of target at $60m (maximum), and interpolate in between. This keeps your staff motivated if performance in one area falls a little short and encourages performance above target.
I hope this helps.
There is one response which you need to make sure you adhere to - and it had to do with the objective not being bottom line (net income) driven since it could create a conflict of interest.
The only add I have is a productivity measure - at my place given that unitary revenue increase is non-existent, we measure it by department expenses as a percent of revenue. So we look at this percent to decline over the year.
This works well as I have some employees that are close to retirement and want to start a reduction in hours/week as a phase out retirement (i.e., 4 days a week). This is also a motivator to find more efficient ways to accomplish the work goal. If there quality (re-work) is missing it will cost them as to efficiency so I feel that is covered by the overall goal.