1. Building Appreciation For Incentive Plans
Fort Worth HR
February 15, 2018
Lane Transou, CCP, GRP, SPHR, SHRM-SCP
Lane Transou & Associates, LLC

2. Incentive Plan Basics
Purpose of incentive plans is to motivate employees to perform work that is above and beyond their day to day role and helps the company achieve certain business/financial goals.
Requires continuous assessment to balance:
Reflect the annual success of the business
Appropriate for the business life cycle
Aligns with human capital plan

4. Life Cycle of a Business
World At Work Variable Pay

5. Business Life Cycle & Pay

6. Life Cycle Determines Pay Practices

7. How Are Incentives Applied In Each Cycle for Business Strategy

8. Human Capital Planning (Jobs)
Companies are Dynamic – Jobs should be planned to adjust as the company grows
Company
Human Capital Planning (Jobs)
Employees

9. Human Capital Planning
Creates the platform for jobs
Why a job exists
When the job is needed
Creates context for order and structure to jobs
Grows with the company
Engages managers and HR in discussions of work – not people
Engages employees in discussions of their career

10. Human Capital Planning
Know your jobs
Job Families
Organizes jobs into disciplines
Operations, Finance, HR, IT, Legal
Sub Families may further identify the job families
Finance: Accounting, Tax, Finance,

11. Career Streams & Career Levels

12. Sample of Basic Career Levels (generic)

13. Short Term Incentives (STI)
Reward based
Performance based
Project base
Budgeted
Targeted financial success
On time completion of a project
Looks back at performance
1 year or less performance period

14. Types of STI Incentive Plans
Performance Based Incentive Programs
Pre approved plan
Approved by shareholders for publicly traded
Budgeted
Identifies participants
Paid upon meeting goals
Performance
Financial
1 year performance period
Participants know performance targets in advance
Supports business objectives and strategy
Aligned with life cycle

15. Types of STI Incentive Plans
Project Bonus
Based on milestones achieved
Budgeted into project (CAPEX)
Based on key milestones with defined dates
No more than 3 set milestones
Participant Population May Vary
Full Time
Part Time
Bonus Payments
Cash based
Larger % for those full time
May consider a early completion bonus

16. Types of STI Incentive Plans
Profit Sharing Plans
Paid if certain financial goals met
No individual performance
Spot Bonus
Truly the only discretionary bonus
Funds budgeted by department
Recipients are technical, administrative and early professional
Amount may range from $100 - $1,000
Company may have policy around spot bonus award standards

17. STI Design Performance Based STI
Written plan defines types of performance measurements
Should be broadly stated to allow for year over year changes
Annual performance goals communicated early in performance year
Performance is tied to multiple criteria
Overall company performance 20% - 50%
EBITDA
Margin
Department performance 10% - 35%
Budget
Operational Success
Individual performance 10% - 25%
Core Performance Objectives 5% - 10%
Safety
Quality

18. STI Design Performance Based STI (continued)
Threshold / Target / Maximum
Threshold – the minimum performance in order to fund the bonus
of Target
Target – what is communicated to employee
Maximum – stretch goals achieved
Stretch goals could be as high as 200%
Circuit Breakers
Corporate performance criteria must be met at threshold in order to fund any of the bonus
Keeps cash payouts in check
Personal Objectives
Subjective
Best practice is with quarterly KPI reporting
Low value is when annual performance rating is used

19. Long Term Incentives (LTI)
Retention based
Forward focused
Performance criteria longer than 1 year but less than 5
Popular with publicly traded companies (stock)

20. Types of LTI Plans Stock Plans Requires a Plan Document
Defines participants
# of shares of stock
Vesting
Plan must be approved by shareholders
Important to follow the terms and conditions of Plan.
Administration requires multiple work groups
Legal HR
Accounting

21. Types of LTI Plans Phantom Stock Plans Private Equity Stock Awards
Retention focus
Popular with private companies
Cash based
Requires a company valuation
Becomes a financial liability on company records
Private Equity Stock Awards
Similar to above but based on when the company is sold or goes public
More of a retention factor
Deferred Compensation Bonus
409A concerns

22. LTI Design LTI Performance Based Awards
Based on company financials defined in the Plan
TSR
EPS
Division financial performance
Population is limited
May allow for minimal stock award to non plan participants
Awards vest over a 3 year period
Performance criteria may include Threshold/Target/Maximum

23. Allocate Incentives by Career Levels

24. Communication
Incentive Plans Well Designed and Well Aligned Are Easy To Communicate
Participants know how they impact the organization
Progress reports have relevance
Awards based on job level is viewed as equitable
Participants see how their jobs impact business success
Communication Basics
Introduce incentive program
Goal/Targets/Timeline/Award/Payout
Provide regular updates on progress
Communicate the good news and the bad news as appropriate (just the facts)

25. Questions Lane Transou, CCP, GRP, SPHR, SHRM-SCP
Lane Transou & Associates, LLC