We recently hosted one of our annual roundtables, gathering a number of executives from the resources sector. 

The session, led by Warren Land, Director of The Reward Practice Pty Ltd, focused on why many incentive plans fall short and how to design more effective ones. With over 25 years of experience in remuneration, Warren shared valuable insights from his roles as Head of Reward and as a consultant to organisations across Australia.

We have summarised the key points from the roundtable below:

Why Most Incentive Plans Fail.

They are built on the wrong premise.

Misguided Focus on Metrics.

• Overemphasis on identifying specific metrics for employees, departments, and locations.
• The assumption that small metric improvements will collectively enhance shareholder value.

Behavioural Misconceptions.

• The belief that external incentives alone can change behaviour.
• Neglect of intrinsic motivation, which can be undermined by external incentives.

Other reasons for failure:

Lack of a real incentive.

• Discretionary bonuses lack value, pressuring fixed pay in a risk-averse culture.

Single target focus.

• An all-or-nothing approach leads to demotivation, seen as unfair and unattainable.

Timing issues.

• Payment timing not aligned with outcome realisation and missing the opportunity to reinforce expectations.

Complexity & wrong measures.

• Misalignment with strategic goals or overly complex metrics.

Insufficient rewards.

• Uncompelling rewards fail to motivate desired behaviours.

Poor communication.

• Outdated plans from lack of updates and implementation.

 

Designing Effective Incentive Plans.

Value Sharing Plans.
Building incentive plans with the right premise:

Step One:

Shareholder Expectations.

Align with revenue, profit, and performance levels.

Step Two:

Funding.

Ensure targets are affordable and compelling.

Step Three:

Meaningfulness.

Balance opportunity size with company performance.

Step Four:

Qualifiers & Modifiers.

Limit individual performance metrics; consider spot bonuses.

Step Five:

Clear Communication.

Explain plan workings and payout maximisation.

 

Why effective incentives matter.

Increased Transparency.

Increased stakeholder scrutiny has led to a need for transparency on how incentive plans are structured and their outcomes.

Companies need to show their incentive plans are aligned with long-term value creation.

ESG Metrics.

ESG metrics are increasingly being incorporated into incentive plans.

This is reflective of broader corporate responsibility towards sustainable and ethical business practices.

Resilience.

There is a need to stay adaptable and transparent in the face of economic uncertainty.

Companies need to ensure their plans can respond to market changes and fluctuations.

Retention & Engagement.

Incentive plans are now seen as crucial tools to retain top talent and increase engagement.

Competitive, well-structured plans attract and retain high-performing employees.