Developing the right compensation plan for executives, senior leaders, and key managers is critical to retaining the leadership that enables the company to reach financial performance and strategic goals. Properly structured compensation plans:
- Improve the ability to attract and hire skilled and talented executives and managers who can help the business grow
- Increase competitive in the job market
- Increase retention of key personnel critical to business success
- Motivate managers to use decision-making that achieves strategic goals
- Tie performance to real results by incentivizing
- Contribute to succession planning by ensuring leadership is retained
- Create a supportive business environment that builds morale and increases employee engagement
- Efficiently leverage financial resources to increase revenues and lower Human Resources expenses
- Are adaptable to changing market conditions
Strategic use of compensation to achieve goals extends beyond establishing a salary plan. It represents a careful blending of salary or fixed costs and variable costs that represent incentives and not just additional payments like bonuses. Incentive compensation connects individual performance and its impact on organizational performance to cash rewards, deferred or equity compensation, benefits packages, and other non-cash rewards.
Requirements to Compensation Plan
One of the mistakes that companies make is creating compensation plans that are not integrated with the Human Resources strategy. Compensation should not be treated like an independent system that is not related to ongoing business decision-making. A more successful plan is the pay-for-performance design that connects pay and benefits to results. The incentivizing compensation plan is adaptable to all performance goals too. For example, an organization may need to improve the number and amount of diverse procurement contracts and uses end-of-year compensation to reward goal achievement. However, the compensation plan serves as an incentive all year for making good strategic decisions that lead to success. Incentives are paid based on real results.
Designing a motivating compensation plan that is tied to performance is one of the most important steps a company will take to create a strategic advantage. Since each business has a different operating model and set of strategic goals, the compensation plan needs to be structured to fit the particular organizational need for certain skill sets, management experience, and types of managers. Incentive compensation programs reward high-performing employees and ensure each key person falls on the incentive scale in a way that reflects performance, experience and longevity. This is much different from a plan that gives senior management pay automatic increases and bonuses.
Developing an outcome-based incentive plan requires in-depth research and analysis of niche markets, industry benchmarks, organizational risks, performance requirements to meet shareholder expectations, and an understanding of how incentives impact behaviors. OGS Capital has expertise in developing compensation plans that incentivize key staff and promote strategic, long-term success. Completing the simple contact firm will connect businesses with compensation experts.
Illustrative business plan samples
OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.