Good incentive management governance means formal decision rights, role accountability, processes and a calendar for managing changes in the company's incentive compensation program. Without good governance, the company is usaually slow to respond to needed program changes, or at risk due inconsistent practices, or fragmented or incomplete program information.
Issues related to poor program governance include:
- Lack of committed stakeholders;
- Too many divergent opinions;
- No clear go-forward strategy, or a constantly-changing one;
- Hours of meetings without progress on the agenda;
- Lack on ownership on key decisions;
In addition, some industries, financial-services in particular, face increasing regulatory scrutiny. What we hear from many clients is, “how can I comply with regulatory guidelines when many of those guidelines aren’t yet clear?”
Companies having just completed a plan redesign effort are particularly sensitive to the issues associated with the plan change, communication and compliance process. Understandably, these thoughts soon shift to the more tactical issues related to ongoing management of the incentive program – until something breaks in the system. In a live production environment, incentive managers no longer have the luxury of working through test scenarios. Missing or erroneous information, unresolved credit and payment disputes and numerous calls for mid-term plan changes can have a direct impact on sales productivity.
These issues typically stem from limited incentive-management capabilities or capacity. Many times leadership will address only the capacity problem by hiring more people or investing in new technology. Often times this isn’t enough.
Incentive Compensation Governance takes a comprehensive view of the incentive management system by focusing on four components:
- Initiatives and targeted outcomes;
- Decision rights and role accountability;
- Processes sequence and calendars.
We encourage companies to evaluate their incentive governance systems immediately following the rollout of incentive plan changes, because the issues related to poor governance are clearer than what might be the case four to six months hence.
In working with incentive leadership to evaluate program governance, we facilitate a number of discovery sessions with key stakeholders. We target each session to identify:
- Current state roles, processes and timing;
- Requirements for future state;
- Current state scoring and gap analysis.
This doesn’t have to be a lot of work. If you suspect there are some opportunities for improvement in particular components of your system, we can share with you features of world-class systems and help you determine how best to leverage those practices. Alternatively, if you know the system is broken but aren’t sure where to focus first, we’ll help you plan the discovery sessions, develop the scorecards and assess the relative priorities.
Good governance requires development and ongoing maintenance to be effective. Is it worth the hassle? Probably if you observe your current incentive management system is not one you would replicate in another organization.