One example of the structuring of a compensation plan might be as follows.
1. A medium-sized project is estimated to require 14 months of effort, a total staffing level (from all areas, IT, and business sections) of 18 people, and a total budget of 3 1/2 million dollars. In addition, as a reasonable precaution, this project carries a contingency fund of ten percent, or $300,000.
2. Each member of the project team is assured, provided all conditions of the incentive program are met, a bonus of $7500. Those goals include:
a. Meeting the 14-month timeframe to complete the project. Meeting the timeframe precludes the shifting of any part of the original project into a follow-on phase.
b. Total project expense cannot, if the incentive rules are to be met, exceed the estimate of 3 1/2 million dollars.
c. The quality of the project must meet the established and agreed- upon quality standards that were set at the beginning of the project.
It will be understood, as a part of the original agreement with the project team, that determination of the success of the project will be made by an independent third party. That determination will be based on the agreed- upon project time, function, and quality criteria of the project that were established at the onset of the project.
3. In this example, if the project meets the incentive standards set for the project, the total bonus expense will be 18 x $7500.00, which equals $135,000.00. Success with this project will mean that the project will be delivered on time, on budget, and in accord with the established quality standards. Although paying the incentives will increase the expense of the project by $135,000 that can be considered to be a small price to pay for a project of that size delivered on time, on budget, and at a high level of quality.
4. There are two other aspects to the example that should be recognized. One is that the total expense of the project, even with the incentive payments, is going to be less than that estimated if the project had run over and the contingency fund had to be used to complete the project. The other is that when completed, the project will have been fully completed. It is by no means uncommon to see IT projects, as they move through the development cycle, and begin to fall behind schedule, broken into "phases." What happens is that some portion of the work in the original project is shifted to phase two, or perhaps phase three, in order that some aspects of the original project can be moved to production.
In developing the incentive plan, every full-time member of the project team, whether from the IT or the internal customer areas, should participate in the plan. The incentive shares should be exactly the same for everyone on the project. Providing equal shares to everyone involved will build a strong sense of teamwork.
In addition, as the project moves forward, the team should have the option to remove any member of the team (through a vote by team members) deemed not to be making an adequate contribution to the project.
One of the pluses of the inclusion of all team members in the incentive plan is, obviously, to ensure a strong focus on the project. Another plus is that it will be clear that, in order to share in the incentive plan, everyone is going to have to make a strong commitment to the success of the project and to work hard to meet the project goals. When the team focuses on the incentive to do the work well and on time, peer pressure is going to correct any difficulties associated with a lack of commitment on the part of an individual team member.
That increased project focus, particularly on the part of people in the business areas is bound to have a positive effect. One of the problems with IT project development is that of involvement in the project of those who request the project. Too often, the feeling outside IT is that the project is an IT project and those who requested the project have limited responsibility with the work or, with the results of the project. Moving to a clear financial incentive for everyone involved to pay appropriate attention and to help push the project can only be good for everyone.
It should be made clear that the installation and use of the IT project incentive plan is to reward people for going beyond the normal effort to make projects succeed. That being the case, people should understand that if they do not meet the standards established for the incentive plan, they will not be faced with the prospect of having their regular salaries or benefits reduced. Moving to the incentive plan should be based on the positive position of encouraging people to raise the performance bar, not as a potential club to change behavior. Indeed, if the incentive plan works as proposed, then over time, behavior is going to change; but those changes will come voluntarily — from the employees — rather than being forced on them by management.
The process must be clearly understood by the organization's senior management and must be supported by that group. In order to gain the required approval, it is going to be mandatory that the senior management group be fully informed of the plan, why it is being recommended, how it will work, and the potential pitfalls associated with changing the way IT projects are funded.
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