• Employees struggle to identify the link between their actions and the short-term incentive plan (STIP), resulting in payouts that do little to focus employee behavior or drive a pay-for-performance culture.
• A STIP is a key part of the Total Rewards offering and is critical to compete for talent in today’s tough labor market.
• Many STIPs incorporate too many performance measures, overcomplicating the plan and making it nearly impossible for employees to understand.

Our Advice

Critical Insight

• Your STIP can’t be everything to everyone – align the plan with key organizational objectives to highlight behaviors for success.
• Leverage modeling to identify and mitigate risk inherent in performance measures to avoid unforeseen consequences of a STIP.
• Balance administration with customization. While it is important to divide your employee population into logical segments to design relevant STIPs, creating multiple STIPs can be unwieldy to administer.
• Translate “compensation speak” into clear everyday language so that all participants comprehend the STIP. For a STIP to direct employee behavior in the manner intended, managers and employees need to understand it.

Impact and Result

• Use McLean & Company’s four-step process to design a customized STIP that focuses on the achievement of organizational objectives, while also incorporating line of sight for employees.
• Keep it simple – this will ease the administration, comprehension, and communication of the STIP.
• Monitoring, adjusting, and reviewing regularly are critical for the ongoing success of a STIP.