March 9, 2020
Disruption & Incentive Plan Design
– Lynn Jokela
A recent Harvard Business Review article discusses a new compensation plan design for companies encountering sector or industry disruption – and, it seems like this includes more companies every day. The author, Seymour Burchman of Semler Brossy, says that companies need to look at comp plan design because most “executives are essentially tied to a structure that supports only incremental change versus radical transformation.”
Designing a comp plan to support long-term transformation can be a challenge but the author says it’s not insurmountable.
To do this, the author says you should design your incentive plans around mission, rather than strategy, attaching targets and incentive payouts to those goals in a disciplined way. Your company’s mission offers consistent, yet flexible, guidance for long-term transformation, agile course corrections, and the building, operation, and constant reshaping of stakeholder-rich ecosystems.
It’s up to boards to narrow the focus to two to three mission-based measures that will serve as the basis for a long-term incentive plan, and then to set goals based on those measures. The goals need to be both specific enough to guide actions and measurable enough to show performance improvement. To complement the long-term goals, directors should set annual incentive objectives as intermediate milestones to gauge progress toward long-term outcomes.