Strategic Compensation: A Human Resource Management Approach, 9/e

Designing Incentive Pay Programs

1. 6 Summarize considerations when designing incentive pay programs.

When designing an incentive pay plan, HR professionals and line managers should consider five key factors:

• Whether the plan should be based on group or individual employee performance.

• The level of risk employees will be willing to accept in their overall compensation package.

• Whether incentive pay should replace or complement traditional pay.

• The criteria by which performance should be judged.

• The time horizon for goals—long term, short term, or a combination of both.

Group versus Individual Incentives

Companies considering various design alternatives should choose a design that fits the structure of the company. Group incentive programs are most ...