Designing incentive compensation for Strategy Implementation

Designing incentive compensation for Strategy Implementation

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.

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