You Say Tomato, I Say Toe-Mah-Toe...Compensation and Incentives

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 This past Wednesday saw the return of Influence Insiders after a few months in hiding. The show brought with it a cast full of great commentators, all contributors to the blog site Compensation Cafe.

Discussion topic of the day? Compensation and Incentives: What's the difference?

In many instances (prior to the show) the two terms seemed to be used interchangeably - like they are one in the same. While both compensation and incentives will prove to be important factors for employee retention in the coming year, they are certainly different entities as they target different sides of the brain. As one commentator put it, "compensation looks at the financial contract, incentives focus on the psychological contract."

Compensation is an important tool in employee retention and engagement but not the ultimate one. However, as discussed in the podcast, companies need to have their compensation programs up to par before embarking on incentives. Incentive programs that are not in line or backed by solid compensation programs aren't nearly as effective as they could be. One commentator made an analogy using a computer with no electricity. Sure your computer isn't working because you have no electricity. However, upgrading and buying a new one won't make you be able to compute any better because you still don't have electricity to run it (aka computer being incentives, electricity being compensation).

Compensation isn't the end game

Your employee engagement and retention efforts have only just begun with compensation. As one of the conversation contributers mentioned, compensation only brings employees to neutral in terms of engagement. Your compensation plan only brings employees to the table. Your incentives program makes them excited to be there. A noncash incentive program will do wonders for your employee engagement efforts. After all, as one contributor and former compensation consultant said, the companies that used incentive programs were almost always very profitable ones.

These were just a few of the many points mentioned in the show. Other posts discussing the podcast come from Ann Bares here and host Paul Hebert here.

So what do you think? Incentives and compensation...what's the difference?