Guidelines for designing incentive compensation system for Strategy Implementation
The following guidelines should be followed when designing incentive compensation system for strategy implementation:
- 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.
- For every employee: The incentive plan should extend to all managers and all workers, not just for top management.
- Fair: The reward system must be administered with special care aril fairness.
- Link to performance target: The incentives must be tightly linked to achieving only those performance targets spelled out in the strategic plan.
- Individual reward: The individual performance target should involve outcomes that the individual can personally affect.
- Short time: Keep the time between the performance review and payment of the reward short.
- Non-monetary reward: Make liberal use of non-monetary rewards; don’t rely solely on monetary rewards.
- Communication and explanation: Once the incentives are designed, they have to be communicated and explained.