QS Study

Guidelines for designing incentive compensation system for Strategy Implementation

Strategy implementation is concerned with the managerial exercise of putting a freshly chosen strategy into place. It is a procedure that puts plans and strategies into action to reach desired goals.

The following guidelines should be followed when designing incentive compensation system for strategy implementation:

  1. Adequacy: The performance payoff must be a major piece of the total compensation: Payoff must be at least 10 to 12 percent of the basic salary.
  2. For every employee: The incentive plan should extend to all managers and all workers, not just for top management.
  3. Fair: The reward system must be administered with special care aril fairness.
  4. Link to performance target: The incentives must be tightly linked to achieving only those performance targets spelled out in the strategic plan.
  5. Individual reward: The individual performance target should involve outcomes that the individual can personally affect.
  6. Short time: Keep the time between the performance review and payment of the reward short.
  7. Non-monetary reward: Make liberal use of non-monetary rewards; don’t rely solely on monetary rewards.
  8. Communication and explanation: Once the incentives are designed, they have to be communicated and explained.