A Successful Incentive Plan Needs a Solid Intent and Execution Plan

I often say that the essential aspect of any incentive plan is its intent. Intent drives the details of design. Intent sets the foundation for communications. Intent informs people of the definition of success. But intent without excellent execution will nearly always fail. In other words: "The thought doesn't count without appropriate action." The lack of technical expertise, proper record-keeping, plan management tools, attention to detail, or a simple lack of ongoing focus can lead to a great idea resulting in little or no return.

Even the most straightforward incentive plan design requires defining a ton of details. I usually start with: "Where can it go wrong?" This provides guidelines that ensure the plan can protect you from yourself. You need to consider where participants can manipulate the results or cheat the plan rules. You then need to design the process or rules to stop these things before they happen.

The next question has to do with: "What if something far different occurs to the company in the future?" The pandemic has made this a more apparent issue. You may not always be able to build a plan that flexes for every eventuality, but you need to have a Plan B, and maybe even a Plan C, sketched out and ready for those times when the world surprises us. This can include spin-offs, acquisitions, supply issues, viral popularity, etc.

Then work on changes to the individual employee. How do you handle new hires, promotions, reassignments, leaves of absence, moves between departments, moves between locations, late-stage Performance Improvement Plans, and terminations? Most companies define basic things like termination rules, but many are surprised when other changes happen during an employee's tenure. Clarifying how you will handle these issues will help participants understand the plan and help reduce your future workload.

This brings us to tools. Excel CAN work, but it seldom works well. There are many systems to help manage incentive plans. Most of these systems' cost is minimal compared to the cost of an ineffective or broken incentive plan. If your program is simple and small, spreadsheets may be a viable solution, but don't expect a critical program to deliver on its potential if you aren't willing to invest in its long-term success.

Communication is another vital aspect of execution. Many companies see communications as a way to explain the plan to participants. But I find that communications are also a great way to ensure that you execute the plan. It is hard to explain something to your staff if you don't know how it will work. Putting together a presentation and a comprehensive Q&A document forces you to prepare for the future. Giving your participants the ability to ask questions during live training sessions is a great way to fill in the gaps. In the end, they will understand the plan and so will you!

Don't waste your time and budget with another semi-effective incentive plan this year, consult the most reliable experts in compensation. Go beyond the great ideas and put the hard work into the details that define success. Get help from internal and external sources. Test drive the plan by modeling extreme and unlikely scenarios. Create a test group of participants who can tell you how they may cheat the system. Spend the money on tools that will help your thoughts and intentions become a successful reality. And finally, communicate (more).

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored" Everything You Do In Compensation is Communication", , "Equity Alternatives" and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Posted by DanFutureSense on 06/03/2021 at 11:12 AM in Compensation Communication, Executive Compensation, Incentives/Bonuses, Pay for Performance, Sales Compensation, Small Company Compensation, Stock/Equity Compensation, Total Rewards | Permalink