Purpose is the reason for which something is done or created or for which something exists.
Why do we provide various types of compensation to employees?
Base Pay
• Provides security and addresses short-term needs.
Short-Term Incentive
• Rewards individual goal achievement and short-term company success.
Long-Term Incentive
• Rewards long-term success with an incentive tied to company overall market performance/value and shareholder interests.
• Opportunity to recognize and reward high performers.
• Aids in the retention of eligible employees.
• Provides meaningful, competitive long-term wealth accumulation opportunity.
Purpose is also how you determine if you are meeting the success metrics for the rewards you deliver to employees.
• Is your base pay providing security and addressing short-term needs or is it falling short of those goals?
• Is your short-term incentive rewarding individual goal achievement and company success? Or is it delivered in a way that it is not tied to goal achievement?
• Is your long-term incentive tied to the company’s overall market performance and value creation? Or are the LTI communications not focusing on market performance and value creation? Do eligible employees understand how their work prioritization and performance is impacting the LTI value?
• Is your long-term incentive recognizing and rewarding high performers? Or are you delivering LTI to everyone?
• Is your long-term incentive retaining eligible employees? Or is it an afterthought and not something that your eligible employees value?
• Is your long-term incentive providing meaningful, competitive long-term wealth accumulation? Or is the value of the LTI grants unknown and not providing the tangible wealth accumulation you intended?
Define the purpose of your rewards. Ask the right questions. Fix the rewards if they aren’t meeting the purpose you defined. And remember to ensure that your pay communcations are aligned to the purpose.
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