The Elements of a Strong Incentive Plan

The Elements of a Strong Incentive Plan

Designing, managing, and communicating incentive plans are some of the most challenging hurdles HR and compensation teams face today. Great plans cannot be generic, as they must be able to suit a broad range of specific variables to satisfy a diverse workforce. Plus, they must be structured to align closely with company’s strategy, culture, and goals. At the same time, effective programs must also deliver pay that is in line with both effort and achievement.

While it may seem like an overly simplified approach to compare a strong incentive plan to a shape, in reality, the most effective plans do bare many similarities to a triangle. Triangles are considered the strongest shape for three reasons: they are easy to balance, easy to understand in mathematical terms, and difficult to manipulate.

Likewise, good incentive plans are well-balanced, can be easily understood by employees, and are difficult to game.

Of course, there’s another similarity among triangles and effective incentive plans. While triangles have three sides, incentive plans should follow The Rule of Threes. This simple, easy-to-remember rule is an effective and principled approach for mastering incentive plans which states that:

  • There should be no more than three metrics for any plan
  • There should be no more than three defined goal levels for any plan
  • There should be no more than three incentive plans for any one individual

 

Trios tend to stick in our minds, as they make a memorable impact and are easy to recall. For this reason, The Rule of Threes can be a valuable asset to any compensation team whose goal is to simplify the complexity surrounding the incentive planning processes by providing guidelines that are restrictive enough to exercise a healthy degree of control over incentive pay, while still maintaining ample flexibility to meet the evolving meets of the organization.

HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.

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