Incentive Pay Plans: STIPs, LTIPs, Sales

The biggest advantage of incentive pay is that it is in direct relation to attainment of identified objectives (pay-for-performance).

Restoring worker productivity levels in changing times is a vital issue for companies. Studies have shown that incentive programs are effective measures to improving company performance because they create a culture that builds ownership, morale, performance and recognition. The biggest advantage of incentive pay is that it is in direct relation to attainment of identified objectives (pay-for-performance). When performance is high, the cost to the company is low because reward is only given when goals are achieved. The absence of incentives is the most costly to the company because of fixed pay and poor performance.

Short-term Incentive Plans (STIP)

Of all the compensation elements, short term incentive plans have the greatest potential to influence employee behaviour and enhance profitability. STIPs are often linked to the performance of a function, department, group, team and individual. The quarterly or annual timeframe gives employees enough time to focus on achieving specific performance goals and measures. This can be very advantageous for a company.

Short Term Incentive Plans and bonuses are cash based and often linked to:

  • Performance cycles
  • Signing-on programs
  • Retention programs
  • Referral programs
  • Sales and commission programs
  • Spot Awards or Recognition programs

Considerations for Designing STIPs
EMEND Management specializes in designing the best-suited short-term incentive plan for your company. When designing a plan, EMEND ensures that:

  • The participants represent the individuals who can influence the plan performance measures.
  • The short-term performance measures truly depict organizational success metrics; and are in the best interest of the organization.
  • The performance measures are clearly communicated, including a minimum threshold performance requirement below which no awards are earned.
  • The plan
  • has the proper balance of corporate, business unit, department, team and individual performance
  • is integrated with base salary to produce competitive cash compensation consistent with the company’s performance
  • is self-funding and reasonable, as shown by a cost-benefit analysis
  • rewards excellence
  • integrates with the company’s long-term incentive plan
  • has a voluntary deferral provision

Forms of Short-term Incentive Plans
STIP plans can take various forms.

  • Team or Small Group Incentives: this plan excels in promoting teamwork and is less administratively cumbersome for managers than individual awards.
  • Profit Sharing: this plans helps employees feel ownership of the company and increases morale. It is also easy to implement.
  • Gain Sharing: this plan works best for production environments as well-defined and concrete measures of unit performance can be used. Gain Sharing can take the form of individual incentives or spot recognition.

Long-Term Incentive Plans (LITP)

Long-Term Incentive Pay (LTIP) is a form of compensation for performance during a period that extends beyond one year. LTIPs are often stock based and reflect the company’s success over years. They are an essential part of an organization’s total rewards package and are of high importance during the developmental and growth phases of any company. LTIPs are an excellent talent retention tool since they are awarded after a period of 3, 5, or 10 years.

LTIPs usually include:

  • Cash
  • Capital stock
  • A combination of both

Considerations for Designing LTIPs
As compensation specialists, EMEND Management ensures your company’s LTIP plan:

  • Identifies appropriate objectives and uses the right measurements
  • Is in keeping with the corporate culture (promoting teamwork and cooperation)
  • Is self-funding and reasonable, as shown by a cost-benefit analysis
  • Identifies with the shareholders
  • Correlates with individual performance
  • Correlates with group performance
  • Is easily understood by all

Sales Compensation

Sales compensation is, singularly, the most critical element that can derive the most performance from your team. From small market businesses to large multinational corporations, EMEND will provide a tailored solution to your business’ needs. Drawing from a wealth of experience in the HR field, you will receive professional, complete and implementable solutions to gain efficiencies in your organization.

EMEND provides essential end-to-end solutions to evaluate and address your company’s particular needs:

  • Methodical Assessment of Needs
  • Market Compensation Evaluation
  • ROI Strategy Development
  • Process Efficiencies
  • Performance Indicator Creation
  • Rollout Process

Forms of Sales Compensation Plans

  • Base salary only
  • Commission only
  • Base salary plus commission
  • Base salary plus bonus

Sales Compensation Model

EMEND Management designs competitive sales compensation models in five phases:

Phase A: Analyze Business and Sales Plans

  • Confirm business objectives
  • Define sales strategy, roles and eligibility

Phase B: Establish Market-based Pay and Financial Requirements

  • Examine market pay and determine proposed compensation options
  • Develop a funding plan

Phase C: Determine Performance Measures

  • Identify Performance Measures
  • Confirm Electronic/Reporting Capabilities

Phase D: Design and Implement New Sales Compensation Program

  • Set Goals
  • Develop Sales Compensation Design and Mechanics
  • Develop Transition and Communication Plans

Phase E: Monitor, Track Program Success and Modify as Required

Capitalize on Your People

  • Attract and retain the best employees
  • Increase productivity and raise morale
  • Become a high-performance organization

Contact EMEND Today

EMEND Management Consulting Inc.

Brookfield Place
TD Canada Trust Tower
161 Bay Street, 27th Floor
P.O. Box 508
Toronto, ON M5X 1C9

PHONE: 416.657.0599
FAX: 416.657.9139