A performance based incentive scheme is one that integrates aspects of remuneration management and performance management. It is not possible to design or implement such a scheme without consideration of these two factors.
Most organisations and employees now accept that remuneration strategies need to contain an 'at risk' component. Not only does this provide a focus for performance outcomes but helps to contain fixed remuneration costs.
Performance based incentive schemes can assist an organisation to maximise its return on remuneration expenditure.
Potential Benefits:
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Focus executives, management and staff on delivery of results;
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Contribute to organisation and business unit performance;
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Provide a common performance language;
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Improve communication at all levels;
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Contribute to cultural change;
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Help contain fixed remuneration costs.
Design Considerations
Designing a performance based incentive scheme requires specialist expertise. Factors for consideration include:
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Performance drivers;
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The split between organisation, business unit and individual components;
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Activation points;
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Capping levels (the maximum incentive payment);
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Short term/long term;
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Frequency of payment;
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Delivery mechanisms (cash, benefits, shares).
Geoff Nunn and Associates has developed a range of approaches to incentive scheme design. In some industry sectors, financial performance drivers remain the key determinant of incentives. In others, a more broadly based approach is required (see the
‘Balanced Scorecard’). Effective incentive schemes must fit with the organisation's operating environment and overall remuneration strategy.
We work with Directors, Executives and HR Professionals to develop schemes specifically designed to support business outcomes. We can also assist with communication, implementation, documentation and variations to executive contracts.
