Guidelines for Designing Incentive Compensation Systems: The concepts and company experiences discussed yield the following perspective guidelines for creating an incentive compensation system to help drive successful strategy execution:
a. The performance payoff must be a major not minor piece of the total compensation package
b. The incentive plan should extend to all managers and workers, not just top management
c. The reward system must be administered with scrupulous care and fairness
d. The incentives should be based only on achieving performance targets spelled out in the strategic plan
e. The performance targets each individual is expected to achieve should involve outcomes that the individual can personally affect
f. Keep the time between performance review and payment of the reward short
g. Make liberal use of nonmonetary rewards – do not rely solely on monetary rewards
h. Absolutely avoid skirting the system to find ways to reward effort rather than results
Once the incentives are designed, they have to be communicated and explained.
CORE CONCEPT: The unwavering standard for judging whether individuals, teams, and organizational units have done a good job must be whether they achieve performance targets consistent with effective strategy execution.
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