<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=349935452247528&amp;ev=PageView&amp;noscript=1">
Search
word-map-thumb

The Alternative Board Blog

Why Strategic Plans Must Consider Manager Incentives

Nov. 21, 2014 | Posted by The Alternative Board
Performance Management Concept And Brain.

Your company might have a brilliant strategic plan in terms of growth and competition. But does it take your manager incentives into consideration?

Denise’s company, for example, implemented an incentive plan for top management that was tied to improving the company’s per-share earnings on an after-tax basis. The company had an opportunity to grow by acquiring another business in a synergistic field. But by structuring it through a stock swap, the acquisition would dilute the per-share earnings of Denise’s company. Is it any surprise that management found ways to foil the acquisition? How can you expect managers to make a whole-hearted effort to follow a strategic plan when it will cost them money out of their wallets?

Russ’ company’s strategic plan called for 10% growth in annual revenue each year over five years. After the plan had been in place six months he realized that projected growth wasn't occurring, even though profits were improving significantly. Why? In formulating the plan, Russ made rewards contingent solely on improved profit. It didn't take management long to realize that the way to get greater compensation was to reduce expenses, even if those expenses could have led to future growth and profit. As a result, research and development were slashed, as was investing in hiring additional salespeople.

The message of both examples is that performance measurements must be based on a business’s strategic plan.

Measurements for incentivizing performance must support the broader objectives and goals of the company. At the same time, performance criteria should lead managers to focus on the company’s objectives as well as their own.

Want additional insight? Read 4 Step Guide to Strategic Planning now to learn more

DOWNLOAD

Identical performance measurements cannot be used for every aspect of the company. As measurements affect different people and departments, different goals must be set. But each goal should lead in the same ultimate direction. Each element of the company must be united in achieving the strategic plan.

A good strategic plan takes into account the managers’ best interests as well as the company’s goals. Furthermore, managers’ performance measurements and compensation need to align with the company’s strategic plan and goals.

BOSS Webinar: Designing Employee Incentives

WATCH

Written by The Alternative Board

Related posts

How to Reduce Organizational Complexity and Boost Productivity
Sep. 2, 2021 | Posted by The Alternative Board
  As in our daily lives, the world of business has grown a great deal more complex in recent times. Generally speaking, every organization finds itself challenged by innovations in technology,...
5 Ways To Tell When Your Business Needs a System Overhaul
Aug. 17, 2021 | Posted by The Alternative Board
We all know that businesses need to accomplish many tasks each day for their companies to function. And they need to complete those tasks efficiently, smoothly, and quickly to thrive. As an...
3 Ways to Successfully Transition Your Business To New Owners
Aug. 5, 2021 | Posted by The Alternative Board
Transitioning your business is one of the most critical and life-changing decisions you'll make as a business owner. If you handle the process well, you will be helping not only yourself, your team,...
Tips on Grooming Your Business Successor
Aug. 2, 2021 | Posted by The Alternative Board
It may not seem possible now, but the day will come when you no longer run your business (either as a CEO or business owner). Recognizing this inevitability is the first step towards selecting and...
When It’s Time To Sell Your Business
Jul. 15, 2021 | Posted by The Alternative Board
After all the hard work that goes into starting and maintaining a business, deciding years later to sell that business can be among the biggest challenges in a CEO or business owner’s career. You’re...
A Guide For CEOs —11 Ways To Make An Impact In Your First 90 days
Jul. 13, 2021 | Posted by The Alternative Board
Your first 90 days as CEO will set the tone for your entire tenure in the organization. Therefore, this is a crucial time, and the goal is to establish your credibility and trust, so the team and the...
Use Your Company Culture as a Competitive Advantage
May. 18, 2021 | Posted by The Alternative Board
Every business needs a competitive edge, whether it’s in the quality of their products or services, their dedication to customers, or some other aspect they can leverage to outdo their competitors....
How to Sell During Times of Uncertainty
May. 6, 2021 | Posted by Phil Spensieri
If your business is struggling right now, you may be wondering if there’s anything you can do to improve your sales. While there’s no guarantee that any specific strategy will accomplish this during...
Managing Family Business Conflicts
Apr. 29, 2021 | Posted by The Alternative Board
Small business owners and CEOs have plenty to contend with as part of their normal daily operations. When the business is family-owned, a different crop of challenges may emerge. That’s because “the...
Tips on Effective Business Succession Planning
Apr. 27, 2021 | Posted by The Alternative Board
With many family businesses, the time to think about succession planning starts on Day One. It’s a complicated subject, sometimes fraught with emotional baggage, but is critically important,...