More than ever, companies are adopting employee incentive plans to retain staff and compete with global firms for specialist skills that have become increasingly scarce. Although incentive plans range from simple deferred bonus plans to highly sophisticated equity plans, they tend to have one thing in common: they are designed to keep employees around.
Incentive plans may do more than just retain employees; they can also incentivise and reward employees for achieving individual and organisational objectives. These plans get significantly more complicated when performance conditions are applied to incentives to determine the pay-out or the number of shares that employees will eventually receive. For example, how much an employee gets at the end of the incentive period may depend on how well they meet personal goals or how well the company does financially.
Companies should be aware that in addition to the complexities associated with the types of incentive schemes available, the processes involved in administering these incentives from start to finish can be intricate, administratively intensive, and prone to human error.
Miscalculation could spell disaster
Issuing and managing an incentive plan usually requires input from several company departments, including the Rewards, Remuneration and Finance teams, meaning that data is passed from pillar to post. In the past, this entailed sharing sensitive information via spreadsheets and making manual adjustments, which introduced the potential for human error and miscalculation that could have severe consequences for both the organisation and the employee.
The incentive award lifecycle typically involves issuing awards to participants, monitoring whether the performance conditions are met over a specified period, and then ensuring that the participants of the scheme ultimately receive the benefit of these awards either in cash or in shares in the company. The administration for incentive plan managers increases exponentially when awards are offered annually and contain multiple and complex performance conditions. More than this, administrators need to deal with the complexities of terminated employees or employees that transfer across company divisions. Basic calculations simply don’t suffice, and neither does relying on expensive consulting services, which only solves one part of the puzzle.
Making sure employees are given the correct number of shares or pay-out once they have satisfied their performance conditions is one of the most challenging aspects of running an incentive scheme. Also, businesses tend to rely heavily on brokers to ensure there are sufficient shares available to distribute to participants to settle the awards.
Taking the pain out of incentive plans
The process of providing and maintaining staff incentives can be significantly simplified with a digital solution that facilitates end-to-end automation of complicated processes and calculations. In addition, technology can also be very useful when it comes to communicating with staff, enabling them to view their award information online, providing clarity on the number of awards that are going to vest, and integrating directly with the company’s broker to deliver shares.
By drawing information from a central source, using cloud technology, the right solution will keep all information up to date, no matter who the stakeholders are or when they need to access important information. This means that – reporting on the financial impact for Finance, obtaining disclosures and compensation data for the Remuneration team, or allowing Brokers to sell shares to pay employees – can happen in real-time.
The success of an incentive plan is measured by its ability to motivate, retain, and benefit those that participate. And this can only be achieved through an effective and efficient digital system that enhances productivity for all those involved in implementing and managing it.
By Michael Ketz, CEO at ShareForce