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Create an Effective Short-Term Incentive Plan

Clearly connect behavior and results to a STIP or risk payouts being viewed as an entitlement.

  • Short-term incentive plans (STIP) are table stakes for many organizations, yet the alignment and support of key organizational objectives is often not adequately integrated into STIP design. The result is a plan that typically involves a large spend, without a tangible impact on organizational performance.

Executive Summary

Critical Insight

A short-term incentive plan can’t be everything to everyone – align the plan with key organizational objectives to highlight behaviors for success. Leverage modeling to identify and mitigate the risks inherent in performance measures to avoid unforeseen consequences of a STIP.

Impact & Result

    • Use McLean & Company’s four-step process to design a customized STIP that focuses on the achievement of organizational objectives, while also incorporating line of sight for employees
    • Keep it simple – this will ease the administration, comprehension, and communication of the STIP payment.
    • Regular monitoring, adjusting, and reviewing are critical for the ongoing success of a STIP.

Research & Tools

1. Align the STIP with key strategic priorities

Identify organizational priorities to ensure the STIP drives key objectives.

2. Design the STIP

Create the STIP structure, select performance measures, define targets, delineate weightings, and identify a modifier.

3. Plan the STIP payout

Model multiple STIP scenarios, identify risks, and define logistic requirements.

4. Communicate, monitor, and review

Train managers to communicate the STIP and continually evaluate.

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