There is a key role for incentives in managing and retaining key executives for the company. Here are some reasons for and examples of how to structure effective incentive programs for management.
1. You want to retain key management personnel for a number of reasons. High turnover destabilizes the company and can have severe effects on moral of employees and the bottom line.
2. You want to retain high performing managers to enhance your own company’s growth potential. Keep key managers from moving to competition.
3. Good managers don’t expect a bonus without achievement but don’t set the bar so high as to be unachievable. That becomes a disincentive to achieve.
4. Set goals that help improve your bottom line; achieving new sales records is not a priority if the costs exceed the benefit. Sales executives should be just as concerned about profitable sales as the CFO.
5. Pay executives for overachieving by sharing profits. As profits goals are exceeded rewards can continue to be major incentives if shared fairly. Reward contribution.
6. Be competitive but unique and allow key employees to participate in goal setting. When they are part of setting the goals they are more likely to increase efforts to reach the bar.
7. Conduct periodic reviews to ensure all incentive participants know where they stand. Let’s not have surprise results announced at year end….good or bad.
8. Be completely transparent. If goals are profit based show actual revenue/profit results so that there is a clear understanding of achievements.
9. Roll plans forward and allow incremental bonuses for achievements in consecutive years. That’s a great way to keep a key person from leaving; that extra bonus for additional achievement may be too juicy to walk away from.
10. Stock options are often used as a tool for key employee retention. The chance to be a part of ownership can be major motivator. However recent issues in corporate governance have tended to dilute and weaken some incentives. Try to strive for balance without risking responsibilities to shareholders.
Incentives are important tool to maintain a motivated and dedicated management team and a well-designed plan can bear fruit over the long term.
Those are a few on my thoughts. Let me know what you think.