Guidelines to Designing an Effective Reward System

·         Performance payoff must be a major piece of the total compensation package

·         Incentive plans should extend to all managers and employees b/c they make it happen!

·         The system must be implemented with detailed care and fairness

·         Incentives must be linked to achieving only performance targets in the strategic plan

Why Performance-Rewards are Important

·         Reward structure is one of the most powerful implementation tools for corporate and industry management

·         Specific incentives signal desired performance and behavior

·         Rewards induce people to go all out to

o   Execute strategy effectively

o   Achieve objectives in strategic plan

Making Performance-Driven Compensation Work

·         Keys to implementing pay-for-performance

o   Make performance target basis for designing reward systems

o   Clearly define performance targets

o   Hold every person/group accountable for achieving targets

o   Be fair and impartial in comparing actual performance against targets

o   Avoid bending the system to reward non-performers

o   Explore causes of variation

§  Possibly due to poor employee performance, goals unreasonable, unexpected market controls, etc

o   Hold people accountable

o   Set rewards based on level of each employee’s accomplishment