7 Keys to Incentive Plan Success

by Jerry Bumgarner on April 27, 2015

in Compensation,Employee Engagement

key-people

When designing incentive plans, there are seven important actions organizations must take to help assure that incentive compensation plans are successful in achieving the results for which they were designed.

The 7 Keys include:

  1. Establish a total compensation strategy for those covered by the plan, while identifying the competitive talent market, pay positioning versus that market, and the basis for payments.
  2. Identify the target total cash objective compared to the market, including how much should be base salary and how much should be incentive pay when performance objectives are achieved.
  3. Determine the incentive plan performance criteria, while assuring clarity about what the organization expects to be achieved by the team and/or individuals being rewarded.
  4. Select individual incentive award opportunities, and be clear about what participants can earn at threshold, target, and maximum performance levels.
  5. Model the plan to evaluate its impact at various performance levels and be sure the plan strategy and goals are being achieved. Build in flexibility as needed.
  6. Take the time needed to effectively communicate the mechanics and impact of the plan to participants. The inclusion of participants in plan design generally helps with communications.
  7. Continuously monitor the plan and make appropriate prospective adjustments to assure its effectiveness and alignment versus goals.
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