Last month we took a general look at measures to establish that all-important culture of employee “ownership mentality;” one that once created can help impel a business to greater success.
Now, let’s see how compensation structure impacts that desired ownership mentality, beginning with short-term incentives.
Essentially, short-term incentives are performance measured and typically paid out in 12 months or less. These incentives can play a large role in engendering an employee’s sense of “investment” in an organization if they are based on the achievement of certain departmental goals and/or hitting a profitability threshold.
Most companies utilizing short-term incentive components as part of an overall “ownership” approach will “weight” the incentive based upon a tier system. As such, tiers are established for different classes of employees in conjunction with their impact on various performance measures.
For example, incentive for Tier 1 or top level management is usually based on company performance, not department or individual contribution. Incentives for Tier 3 or 4 employees, however, are heavily weighted on team and individual performance, and hardly at all on overall company achievement. The objective with both tiers is to create focus and tie incentives to specific goals that the employee is best positioned to help meet – in other words, allowing an employee to feel engaged and invested in the workplace, which translates into that coveted ownership mentality.
Long-term incentives, which can include shares of stock, stock options, phantom stock, a profit pool or incentive deferred compensation, are designed for top talent retention.
Key among the intentions of long-term incentives is to create a focus on attaining the company’s long term financial goals and engender a sense of “investment” in those goals.
Long-term incentives provide a substantive reason for top talent to both join and stay with a company. Attractive inducements can “reel them in” and likewise maintain star employees.
Sustained growth and hitting those important goal milestones occurs when key employees are motivated to focus on performance, leading to execution and a pattern of continued achievement – in the long run, a win-win for both the company and its employees.
About our Benefits Installment Author:
James E. (Jim) Moniz, CEO of Northeast VisionLink, a Massachusetts firm that specializes in structuring executive compensation. James E. Moniz is a national speaker on the topic of wealth management and on executive compensation. Jim Moniz will be presenting at this years SHRM conference in Phoenx, be sure to check out our presentation: “Creating and Sustaining a Competitive Advantage, The Role and Impact of Effective Compensation and Rewards Strategies”