New year, new plan: 3 steps to start creating your annual incentive strategy
2023 is right around the corner, and while you may not be thinking about your new year’s resolutions just yet, you should start planning and reviewing your annual incentive strategy. But with the Great Resignation and inflation still hanging in the air, it can be hard to know where to begin. Read on to learn the three steps you should take to help create and implement a successful incentive strategy and ring in the new year.
Step 1: Map out some metrics
Planning out your 2023 incentive strategy begins with a bit of research. It’s no secret that recent inflation and the Great Resignation have impacted how employers and employees view compensation. Researching and analyzing how specific metrics may have changed due to high turnover and increasing costs can give employers a clearer view of what factors to consider when determining incentive compensation for the new year. It can also help companies more accurately position themselves in the marketplace and against competitors.
Step 2: Review your current incentive plan
The next step in building a successful incentive plan is to review the one your company currently offers. Look at the salary amount you are paying your employees and any benefits or rewards systems you have in place. An analysis of your latest incentive strategy can help ensure your plan keeps up with employee expectations and is on par with your competition. It can also be helpful to revisit your pay philosophy and refresh it to ensure it keeps up with the supply and demand of your business’s market.
In reviewing your current plan, keep an eye out for opportunities to incorporate other forms of increased compensation. For example, consider engaging in geographic arbitrage if your company offers remote work. In this practice, you pay remote employees based on where they live rather than the location of your company headquarters. In addition, consider offering special one-time bonuses or incorporating a variable pay program as a part of your new incentive plan.
Another factor to consider when evaluating your plan is determining who is eligible for these incentives. Are these going to all employees? Or is it limited to specific groups or job levels? Once you determine these aspects of your current plan, you can work on implementing changes for the new year.
Step 3: Communicate
After researching current job market metrics and making adjustments to your incentive plan, the next step is to communicate the changes to your employees.
According to a survey of 13 organizations with results from over 13,000 workers, employees are highly satisfied with their company’s rewards system the more they know about it. Effectively communicating your incentive plan to employees can help increase retention, make them feel comfortable within their role, and give them a better understanding of how their rewards can grow as a result of their contributions to the business.
In any communication, it is also essential to identify challenges you may need to overcome as an organization, department, or individual. Changes in labor laws or conditions outside of the organization’s control — such as an economic recession or increased cost of goods — can impact the way your incentive plan is functioning. It’s critical to explain any updates within the plan that may occur due to these changes.
It may seem like 2023 is still a ways away, but the time to start planning your company’s incentive program is now. Taking these three steps can be the first strides towards an effective plan that benefits your business and keeps employees satisfied.
Key questions to ask when gathering metrics:
- How has your business or organization changed? What about prices, profits, supply chain challenges, or customer engagement?
- What is the current incentive compensation plan, and is it affordable?
- Are your participants motivated to perform?
- Is the current plan in alignment with your organization’s strategy, goals, and performance?
- How are your competitors compensating their employees? Is your plan comparable?
- What jobs at your company are essential to keep the business thriving?
- Which employees have extensive experience, are high performers, or have a unique skill set?
Once you determine what metrics have changed, you can begin strategizing for your incentive plan for the upcoming year with reliable research to guide your decision-making. If you aren’t sure where to find or how to gather data, reach out to a compensation expert to help get you started.
Need help designing your incentive plan for 2023? We’re here to help! Contact us today to schedule an audit of your current incentive plan. Plus, if you purchase any recommended services, you will be credited the cost of the audit.