1. Maximize the Effectiveness of Short-Term Incentive Plans
Focus on leveraging a STIP to drive behavior and results, rather than just a necessary cost to running the organization.
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2. EXECUTIVE SUMMARY Overarching Insight: SAMPLE Situation
Short-term incentive plans (STIP) are table stakes for many organizations, yet the alignment and support of key organizational objectives is not adequately integrated into STIP design.
The result is a plan that typically involves a large spend, without a tangible impact on organizational performance.
Resolution
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 both the administration, comprehension, and communication of the STIP.
Regular monitoring, adjusting, and reviewing are critical for the ongoing success of a STIP.
Complication
Employees struggle to identify the link between their actions and the 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.
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.
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3. GUIDED IMPLEMENTATION
MCLEAN & COMPANY OFFERS VARIOUS LEVELS OF SUPPORT TO BEST SUIT YOUR NEEDS
CONSULTING
“Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project.”
GUIDED IMPLEMENTATION
“Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track.”
DIY
TOOLKIT
“Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful.”
WORKSHOP
“We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place.”
Diagnostics and consistent frameworks used throughout all four options
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4. Use McLean & Company’s four-step process to design and roll out a simple yet effective STIP1
Align the STIP with key strategic priorities 2
Design the STIP 3
Plan the STIP payout
Communicate, monitor, and review 4
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5. SAMPLE SLIDES
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6. – Stacey R. Carroll, SHRM - SCP
Offering a STIP has become table stakes
The age of base pay as the most important compensation component is over, and the era of variable compensation is at hand.
– Stacey R. Carroll, SHRM - SCP  “ ”
STIPs are growing in both prevalence and as a component of the Total Rewards package:
Ninety-four percent of organizations have STIPs (WorldatWork & Vivient Consulting, 2016).
Variable pay as a percentage of payroll has increased from 7.5% in 1996 to 12.9% in 2015 (Aon Hewitt, 2016).
What has prompted this?
Organizations are leaner – STIPs present an opportunity to decrease fixed labor costs and only pay when behavior and results merit reward.
Budgets for base pay increases have decreased from roughly 10% in the 1980s to 3% today, and this figure is holding steady (WorldatWork, ).
Organizations are looking to reward competitively, despite limited budgets.
STIPs are vital tools in attracting and retaining talent, and provide the opportunity to reward top performers.
STIPs can highlight key behaviors that are important to achieve the level of organizational performance set out in strategic objectives.
Compared to typical organizations,
top-performing organizations are more likely to:
Incorporate variable pay in their compensation strategies.
Award individual incentives.
Award team incentives.
Reward high-performing employees with goal-based incentives.
82%
73% vs
71%
62%
32%
24%
35%
28%
(PayScale, 2017)
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7. Despite their prevalence, STIPs are not reaching their potential
STIPs typically involve a significant spend, yet only:
Thirty-seven percent of employees don’t believe that they will be compensated fairly if their performance exceeds expectations (McLean & Company, Engagement Survey Database, N=84,753).
of organizations find that STIPs effectively drive improved individual performance (Willis Towers Watson, 2016).
50%
STIPs risk becoming an entitlement; an expected part of an employee’s compensation.
of managers believe STIPs drive improved performance among their direct reports (Willis Towers Watson, 2016).
52%
Not helping!
of organizations believe that STIPs effectively differentiate strong, average, and poor performers (Willis Towers Watson, 2015).
Thirty percent of organizations reward employees who do not meet expectations with a bonus [STIP] (Willis Towers Watson, 2015).
47%
The increased use of STIPs and the poor perception of their impact on individual and organizational performance provides a critical opportunity to create or modify a program that actually lives up to its promise.
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8. Use a STIP to purposefully reward and retain top talent
The looming talent shortage is upon us:
CEOs rated “failure to attract/retain talent” as the top issue facing organizations today (Conference Board, 2016).
More than 50% of companies report that the talent shortage is impacting their ability to serve clients, while 40% report it is reducing overall competitiveness (ManpowerGroup, 2015).
STIPs are crucial to this talent shortage
Avoid the peanut butter approach.
Don’t spread scarce labor dollars evenly across employees. Drive organizational success by designing a STIP that will reward and ultimately retain top talent.
(HBR, 2013)
At Apple, the best developer is 9x more productive than the industry average.
At Caesars Palace, the best blackjack dealer keeps players at tables 5x longer.
At Nordstorm, the top sales associate sells 8x more than the industry average.
At a medical clinic, the best transplant surgeon has a 6x higher success rate. 9x 5x 8x 6x
Obtaining top talent is critical for success:
Twenty-eight percent of departing employees stated that variable pay had a moderate effect, major effect, or was the primary reason for leaving (McLean & Company, Exit Survey Database, 2016, N=5,003).
STIPs impact an employee’s decision to stay
McLean & Company insight
STIPs are a key component of a comprehensive and competitive Total Rewards package, as they communicate a strong message regarding how the organization values an employee’s performance, especially in comparison to today’s minimal base pay increases.
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9. MCLEAN & COMPANY HELPS HR PROFESSIONALS TO:
Now, more than ever,
HR leaders need to help their organizations maximize the value of their people.
McLean & Company offers the tools, diagnostics, and programs to drive measurable results.
– Jennifer Rozon,
Vice President,
McLean & Company “
Empower management to apply HR best practices
Develop effective talent acquisition & retention strategies
Build a high performance culture
Maintain a progressive set of
HR policies & procedures
Demonstrate the business impact of HR
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