Short Term and Long Term Incentives - A Balance  

Compensation

Compensation design, its fulfillment and servicing is core to driving employees' performance & capabilities. An execution-focused compensation structure will reward both on goals & leadership. It will provide a reasonable differentiation across levels of performance. It will work on near-term to long-term retention and consistency of performance.


Short Term and Long Term Incentives - A Balance


Long term and short term incentives need to be carefully balanced as the proportion between the two will have significant impact on the employee engagement. It is important that incentive payouts are consistent and based on accurate calculations.

Incentives are an important element of compensation as it is an important driver of performance and employee-motivation. However it is important to note that the incentives can also be of two kinds – short term and long term. One is not more important than the other. While the short term incentives help in achieving the desired annual goals, longer term incentives are instrumental in keeping the employees engaged, controlling attrition and developing future leaders. Short term incentives are usually cash component which is paid-out at specified intervals. It is also important that the HR department bears in mind that the delay in payout after the performance-achievement must be minimized and consistency be ensured at all costs. In the absence of the above the controls, incentives backfire as a strategy and lead to dissatisfaction and attrition. Examples of longer term incentives can be ESOPs or other types of deferred payments such as loyalty bonus which motivate the employee to stick to the organization and take his/her learning and development seriously. Whatever be the incentive strategy which gets decided in the management planning, what is more important is the consistent and effective execution of the same.