Aligning remuneration with strategy

Aligning remuneration with strategy seem to be a common theme in most corporate turnaround I have read. For instance Continental Airlines (HBR, Sep/Oct 1998) and Baxter International change their remuneration and incentive plans to make sure each and every part of the organization is aligned with the announced strategy. And they have successfully done it.

During my MBA course of study, I also have learnt that remuneration plan is also one of the way to effectively cement any changes, be it corporate culture, strategy or structure. As such we can see the importance of the structure of remuneration plans. But how can we have a good remuneration plan? I feel the most important is a performance management system.

The performance management system should be able to measure the relevant factors. The form of measurement should be metric, meaning that it should be measurable and a number can be churned up to decide if one is performing well or not. To be aligned with the strategy, relevancy of the measure should be high as well. No use wasting resources on measuring something that is not relevant to the strategy we want to execute.

The measure should not be complex and transparent as well. As such, there would be less dispute over the measurement and energy can be channelled to executing the strategy effectively and efficiently.

It is important that the performance management system is aligned with the remuneration which in turn is aligned with the strategy otherwise, the strategy might not be executed well and it could be disastrous in a corporate turnaround where many families likelihood are affected in the case of bankruptcies or massive retrenchment.

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