With the new financial year rolling in, it is time to reflect on the successes and failures of the year just passed and make plans for the one ahead.

The success and growth of any given company lies in direct correlation with its’ employees’ levels of determination and achievement.

In order to promote the alignment of the financial interests of employees with those of the owner, it has now become common practice within organisations to offer bonuses and short-term incentives (STIs) as a form of gratuity for the achievements, progress and loyalty.

Many organisations, however, lack sound measures for the criteria of their performance-based reward program, according to William (Bill) Patullo, an independent advisor to Boards and Senior Executives.

“Through decades of corporate service pleasure (and some pain), I have discovered that the characteristics of a sound performance-based reward program usually involve the following features:

• Having clarity and simplicity;
• Appreciating the shareholder/owner perspective;
• Focusing on a small number of key measures;
• Encompassing a realistic horizon;
• Incorporating both financial and non-financial measures, but weighted towards the former;
• Distinguishing between “realistic” and “stretch” targets;
• Recognising competitive realities;
• Identifying with agreed strategies, actions and budgets;
• Dealing fairly with un-controllable events;
• Encouraging teamwork and co-operation; and,
• Exhibiting consistency and durability”.

While those are unarguably important points in any company’s employees’ guidebook, the semantics of these words often lead to disagreements on the outcome measurements. Given the foreseeable difference in perspectives about the merits of connecting various outcomes with rewards, this unsurprisingly may affect the credibility of an entire STI program altogether.

According to business advisors, it is very important for companies to have clearly defined criteria for the distribution of annual bonuses and STIs. It is those good practices that lead to consistently high performance from employees and subsequently business success.

To resolve potential existing problems confronting the application of performance-based rewards programs, Mr. Patullo offers a list of suggestions “to help transform your solid march forward into a joyful trip down HR’s yellow-brick road:

• Targets must be achievable, otherwise the STI reward program loses credibility;
• The progress of an STI or LTI must be repeatedly communicated to your constituents, and not just be left to an explanation at the beginning and end of a performance term;
• Performance budgets should be set with a degree of stretch, in any event;
• Reward for over-achievement may be built into the STI, but only provided that business realities can enable such exceptional performance to be accomplished safely and without recklessness;
• Over-achievement rewards may be either formulaic or discretionary, according to business circumstances and Board/CEO perspectives; and,
• For the benefit of speed-reading shareholders and other constituents, payment of an STI reward should be made in the same year as the performance period involved, so as to link performance and reward more easily in communications with shareholders. Understandably, this will require an estimation of performance and potentially some subsequent adjustment of reward (up or down) in the following year to respond to official calculations.”

Adhering to such strategies should serve as a positive influence on the development and administration STI programs within enterprises, ensuring remuneration management count and with that, peaceful sleep for HR executives and Board members.