ESTABLISHING A REMUNERATION STRATEGY AS THE BASIS FOR SHORT TERM INCENTIVE (STI) DESIGN

A large listed company had maintained an unsophisticated approach to remuneration for decades. Fixed pay increases and an annual bonus pool were managed based on a budget only. The allocation of these rewards was based on manager judgment and ability to advocate for their teams. Employees had little clarity on what performance drove how much reward.

 

A review of business outcomes,  employee pay levels, and the performance management system was conducted. As could be anticipated, it showed a historic variability in business results was not followed by variation in total pay dimensions or performance rating distribution. With support from the Board, management decided to introduce greater formality into the pay framework to ensure the company had a basis to manage remuneration costs consistently with business results.

 

A series of roundtable discussions were facilitated to gather supplementary information to the review. These discussions helped provide important inputs into the formulation of a remuneration strategy, such as:
• Role clarity in the absence of a consistently applied title framework
• Insight into critical business objectives for the short and long term
• Understanding of the overall employee value proposition and the role of pay within the organisation

 

A preliminary remuneration strategy was created to inform the subsequent design of pay, benefit and recognition programs across the company.

 

This strategy included tangible definitions of employee groups and how pay would be used to encourage a greater performance culture. This remuneration strategy was approved by the Board and used to focus joint discussion of a STI design preferences.

 

Workshops were then conducted with senior executives as well as participant focus groups to provide input into the design of an STI program. The design took into account the views of these groups, but within the principle framework provided by the remuneration strategy. After refinement through discussions with the CEO and Head of HR, a program was put forward for Board approval. The program balanced the importance of keeping employees motivated with protecting the company’s interests. Once adopted, the structure of the program was maintained for over six years, with only performance measures and targets adjusted each year.

 

The implementation of the program emphasised the need to consider the improvement to the performance management system and also the need for senior executives to set clear corporate objectives.

 

Two further initiatives were created as a result and their completion further enhanced the usefulness of the STI program for the organisation.
WHAT WE DID
Pay to performance alignment
Incentive design
Company cost management
Performance management systems
QHR_TRANSPARENT