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Other Plan Design Considerations
Now that we’ve reviewed the types of short-term incentive pay plans available, it is important to consider your plan design and other considerations
The design of an incentive plan should include the following important key steps:
Determine the overall strategy of the plan
Assess your organizational readiness regarding:
- Business life cycle
- Business strategy and culture
- Management support
- Business goals and objectives
Compare your compensation competitiveness to the labor market
Decide who will be Eligible
Determine plan goals and measurements for:
- Metrics
- Scope
- Weights
Quantify plan costs and affordability
Assess the performance-reward connection (does the plan “engage” eligible employees?)
Assess Business risk versus reward
Design the plan document
Draw up administrative details
Ensure there is system support
Have a legal review
Get approval
Perform ongoing communication (roll out/progress towards objectives/final attainment/payout)
Develop payout planning and procedures
Make a critique of the plan for future improvements
Avoid practices which are common reasons for incentive plan failure such as:
- Lack of a strategic plan
- Impossible objectives
- Program is based on closed-ended formula
- Program is based on complicated rules and exceptions
- Failure to address obstacles or opportunities related to behavior change
- Failure to engage the target audience
- Lack of communication or understanding
- Inability of people to do what is required
- Inappropriate rewards
- Lack of measurement, audit and feedback systems