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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.

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  • Get on-demand project support
  • Get advice, coaching, and insight at key project milestones
  • Go through a Guided Implementation to help you get through your project
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Our Advice

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 and 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.

Create an Effective Short-Term Incentive Plan Research & Tools

1. Align the STIP with key strategic priorities

Identify organizational priorities to ensure the STIP drives key objectives.

Create an Effective Short-Term Incentive Plan Storyboard
Create an Effective Short-Term Incentive Plan - Executive Briefing
STIP Design Tool
STIP Design Tool Example

2. Design the STIP

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

Case Studies: Create an Effective Short-Term Incentive Plan

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.

Short-Term Incentive Plan Overview Template
Training Deck: Equip Managers to Conduct Effective Pay Conversations

Create an Effective Short-Term Incentive Plan

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How to complete this course:

Use these videos, along with the Project Blueprint deck above, to gain an understanding of the subject. Start with the Introduction, then move through each of the Course Modules. At the end of each Module, you will be required to complete a short test to demonstrate your understanding. You will complete this course when you have completed all of the course tests.

  • Number of Course Modules: 5
  • Estimated Completion Time: 1.5 hours

Learning Outcome

Describe at a high level how to design a short-term incentive plan and how to overcome or mitigate any challenges and risks.

Learning Objectives

By the end of this course, learners will be able to:

  • Explain the challenges facing short-term incentive plans and the importance of aligning a plan with key strategic objectives.
  • Recall the design elements of a short-term incentive plan.
  • Discuss the various risks inherent in short-term incentive plans and how to mitigate them.

All of our McLean Academy courses have closed captioning available. To turn this function on, click on the C.C. in the bottom right corner of the video screen and click "English" on the options that pop-up.

Course Modules

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Introduction

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Module 1

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Module 2

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Module 3

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Module 4

Create an Effective Short-Term Incentive Plan preview picture

About McLean & Company

McLean & Company is an HR research and advisory firm providing practical solutions to human resources challenges via executable research, tools, diagnostics, and advisory services that have a clear and measurable impact on your business.

What Is a Blueprint?

A blueprint is designed to be a roadmap, containing a methodology and the tools and templates you need to solve your HR problems.

Each blueprint can be accompanied by a Guided Implementation that provides you access to our world-class analysts to help you get through the project.

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Speak With An Analyst

Get the help you need in this 4-phase advisory process. You'll receive 16 touchpoints with our researchers, all included in your membership.

Guided Implementation 1: Align the STIP with key strategic priorities
  • Call 1: Assess current state and discuss current STIP pain points.
  • Call 2: Select key organizational objectives.

Guided Implementation 2: Design the STIP
  • Call 1: Discuss STIP structure and participation.
  • Call 2: Review how to select organizational, business unit, and individual performance measures.
  • Call 3: Brainstorm potential risks associated with each performance measure.
  • Call 4: Discuss sources of data, data required, and triangulation.
  • Call 5: Review how to select performance measure thresholds, targets, and maximums.
  • Call 6: Examine performance measure weightings.
  • Call 7: Discuss sources to determine the target payout percentage.
  • Call 8: Review modifier and implications.

Guided Implementation 3: Plan the STIP payout
  • Call 1: Discuss key modeling practices and how to evaluate and mitigate the associated risks.
  • Call 2: Prepare to share modeled scenarios with executives.
  • Call 3: Develop a list of logistic action items.

Guided Implementation 4: Communicate, monitor, and review
  • Call 1: Customize the STIP Overview Template to your organization.
  • Call 2: Discuss and plan for manager training and education.
  • Call 3: Review STIP implementation and discuss areas for improvement.

Contributors

  • Cal Barber, Independent Compensation Consultant, Professor & Consultant, Seneca College of Applied Arts and Technology
  • Chuck Csizmar, Principal, CMC Consulting Group
  • Cindy Xing, Independent Compensation Professional
  • Jeffery O’Leary, Manager – Performance & Planning, Maple Leaf Foods
  • Jerry McAdams, Author
  • John Brockman, Director Compensation, SuperValu
  • John Rubino, President, Rubino Consulting Services
  • Kieran O’Reilly, Managing Partner, Flintlock Consulting
  • Scott Busch, Vice President Total Rewards, Samuel, Son & Co.
  • Steven Osiel, Vice President Compensation & Incentives, Accompass, Lecturer at the University of Toronto
  • Trista Brudnick, Executive and Relocation Services, Reward Service Delivery, John Hancock/Manulife

Related Content: Variable Pay

Search Code: 84127
Last Revised: February 22, 2023

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