1 | De-risk the incentives : in a high risk business environment with increased uncertainty , Delves and Davis explain the benefits of reducing the risk and leveraging embedded incentives . “ This means less upside and less downside , and less incremental payout per unit of incremental performance .”
2 | Set lower performance goals : with the likelihood that the economy in 2021 will not be as well performing as expected prior to COVID-19 , Delves and Davis also highlight that companies will be looking to lower their performance goals for 2021 . “ If companies reduce goals , they should consider the total cost of the incentive plan relative to the lower profit or other performance goal to make sure appropriate sharing ratios are maintained within a reasonable range .”
3 | Changing the performance measure mix : Depending on the opportunities and challenges that present themselves in the rest of 2021 , the two identify that it could make sense for organisations to place a higher weight on cash flow or EBITDA and a lower weight on revenue .
4 | Strategic measures and objectives : with the pandemic highlighting the need for organisation to rethink their operation models in order to maintain employee engagement and business operations , Delves and Davis note that “ this may be the time to make key strategic moves like making an acquisition , exiting a business , repositioning assets , accelerating new technologies , shifting costs and investments between businesses , or taking advantage of market inefficiencies and dislocations .”
5 | Relative performance measures : “ In uncertain times , performance relative to peers is a good way to gauge how well a company is performing and avoids the difficult challenge of setting goals ,” comments Delves and Davis . While making direct financial performance comparisons to other companies can be challenging , the two further explain that relative performance is the best way to maintain relatively simple metrics .
49 businesschief . asia