As a kid , most of us would have received incentive from our elders for doing good job. If you will finish your homework, you will get a candy or you will be allowed to play with your friends. I used to recall it as bribe until we introduced performance linked pay in the organization for Partners.
Does performance pay really work? Who is the beneficiary, it is organization or its partners? If we again go through above example it was win-win situation for both the participants.
We faced the issue with one of our application development project which was based on innovative idea imbibing latest technology and management was planning to resell it in the market. For successful execution we tied up with well-known partner. We entered into service level agreement which was quite precise. With six month development timelines, project started very well , however since we were not expert in that latest technology we were dependent our partner for execution. We encountered certain issues which could have been addressed in a better way and average quality really affected our business plan, what if we would have offered some additional incentive which we could have been covered from this new business idea? The project quality and turnaround time would have been better? Intellectual intervention from partner’s end would have helped making the premium application?
So this incident made us realize that periodic evaluation of partners and measuring their performance is quite crucial particularly when they form the part of direct cost. Efficient evaluation leads to ensuring that right partners are appointed and contributing to the organization performance, but it was challenging to enhance or maintain the efficiency level. We thought of introducing incentive and penalty mechanism, but we were not clear how to implement this as this should not backfire to the bottom line of the organization, so we had to be realistic. On debating internally we arrived at few points which helped in deriving the framework
Why one should pay a bonus for services which partners anyways need to deliver as per service level agreement. So incentive can be annexed to the above average standards of services only?
We realized that strict standards of service will only work if they are crucial and achievable else partners may refuse to sign the agreement. So we needed to be fair while adding the incentive or penalty terms to the agreement. The terms needed to be clear, specific, measurable and well documented not leaving any room for negotiation. Incentive calculation had to be clear and partner needed to understand and accept it with great zeal as he/she was going to be compensated for the extra efforts and above standard services.
Further, acknowledgement and evaluation of incentive also we realized needed to be paid in a short span say a month after success was reported, this ensured that objective of the performance linked pay does not get lost in the process.
Keeping above pros and cons in mind, we started the initiative ‘Growing Together’ with our partner and introduced incentive mechanism in the system and performance linked pay has really worked well for us.