How to Design Incentives for Your Business Transformation

Did you know that about 75% of corporate transformations don’t hit their targets?

But don’t worry, failure isn't written in stone!

What sets successful transformations apart is not just having a killer strategy but also making sure everyone—from the top managers to key team members—is putting in the effort and shooting for the same goals.

Incentives: Making Sure Everyone is Aligned to the Success of Your Transformation

Transformation means big, game-changing moves that can redefine a company over several years.

These days, the exec team is getting more involved, not just sitting back and watching.

Instead of just overseeing, they’re digging in to help create and execute plans—especially those rewarding the people making these changes happen.

Most companies have incentive plans to reward both short-term and long-term performance.

But because transformations are so intense and crucial, they need more tailored incentive strategies.

To boost the odds of a win, nearly all exec teams need to rethink their short-term incentive plans (STIs) and sometimes tweak their long-term ones too.

Incentives should be forward-thinking and tightly linked to the transformation’s specific goals.

Here are seven questions that can guide companies in adjusting their incentives for the best results.

1. Who Gets the Rewards?

A good incentive program rewards leaders at all levels involved in the transformation, from the CEO to team leaders making big contributions.

Depending on the company's size, this could mean dozens or even hundreds of employees.

Rewards should match their contributions. This is way more effective than just rewarding top execs, ensuring everyone is on the same page and motivated.

2. What Should Be Rewarded?

At least half of the short-term incentives should be directly tied to transformation goals.

These goals should sync with the expected ongoing benefits from completed projects. This keeps everyone laser-focused on what’s crucial for success.

Along with financial outcomes, it’s smart to reward things like collaboration and cultural change, as they can improve the business long-term.

3. How Tough Should the Targets Be?

Targets for short-term incentives should be ambitious yet doable, pushing for stretch performance rather than just average results.

But if they're too tough, you risk losing people's motivation. Targets should consider real-world challenges and be based on net impact to encourage minimizing any setbacks.

4. What’s the Right Balance?

Incentives should balance individual and team performance.

Senior leaders might have rewards tied more to the overall success, while team leaders could be rewarded based on their specific team’s results. This setup boosts both accountability and teamwork.

5. What Kind of Rewards Work Best?

Cash is usually the go-to for short-term incentives because it’s straightforward and easy for folks to understand.

The reward size should generally be 50% to 100% of the variable short-term compensation for the leader’s role.

Sometimes, companies might even double the reward for outstanding performance.

6. How Long Should Rewards Last and When Should They Be Paid?

Incentives tied to transformations should last the whole program, often two to three years.

Annual payouts based on hitting specific milestones help keep everyone engaged.

The schedule might vary by role, offering more frequent rewards for junior employees tied to their specific outcomes.

7. Should We Create New Incentives or Adjust Existing Ones?

Most companies tweak their existing short-term incentive plans to match the transformation goals.

Often, the size of the incentive is bumped up by as much as 50% to highlight the transformation's importance.

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With so much riding on successful transformations, the execs need to use their oversight powers to boost the odds.

Rethinking incentives is a smart first step.