Most rewards programs fail for one of two reasons. One is that the design is not aligned with the strategy or the company is not using the program to communicate and clarify priorities. Boards and compensation committees focus a lot on the first issue, such as metrics, targets, peer groups, and composition, and less on the second issue.
In Parts 1 and 2 of this series, we discussed how employee value propositions (EVPs) are built not just on compensation, but on the complete employee experience, from culture to flexibility to meaning. But wages are never neutral. Money tells us what an organization values, how it wins, and what risks it rewards. This article argues that even a well-designed rewards program can miss the mark if no one tells a clear story about what it is supposed to accomplish.
This article provides a framework for boards and compensation committees to understand the link between compensation program design and communication strategies, and how to leverage that link to enhance both compensation effectiveness and broader EVP. The key is to decide how prominent compensation should be in the company's culture and story and ensure leaders have the tools to communicate that choice. When done well, this ensures that reward programs serve their intended purpose, motivating and focusing employees and management.
Central question: How prominent should rewards be as tools for increasing focus?
Should compensation be a quiet validation of results, or a loud cry for change? The two ends of this spectrum are not mutually exclusive, and programs may mix approaches from both ends of the spectrum to understand different areas of performance. However, placing compensation elements at either “pole” can help boards consider how best to communicate their rationale to employees and executives.
| size | more quietly / retrospective | more famous/promising |
| Main purpose | Validate results, reward consistency | Encourage yourself towards your mission. drive change |
| cultural signals | Stability, continuity and professionalism | Urgency, ambition and ownership |
| timing | Associated with outcomes that are likely to be achieved based on the current environment | tied to stretch goals and future milestones |
| Effect on behavior | Facilitate reliable execution | Encourage change and risk-taking |
| Works best if | Business is stable and the talent market is predictable | Strategy shift (turnaround, scaling, new models) |
| Risk if misused | Self-satisfaction and incentive pay feel like a right. | Stretch goals are perceived as unattainable, poorly aligned goals can hinder flexibility, and over-designed communication can lead to employee fatigue. |
| communication style | Discreet, regular checks, manager-driven | Tell stories, symbols, and rituals out loud, often, and led by senior leaders. |
Communication, as well as design, determine where you fall on this spectrum. The key is to decide how prominent the reward is in your story and intentionally align your communications to help you focus on what matters most.
What happens when design and communication are misaligned?
Even a well-structured program can lack motivation if reward design and communication strategies are misaligned. Consider the following common scenario:
- Technology companies have “stretch” goals tied to payouts of 300 percent or more, but executives rarely mention them and managers don't know how to translate them into day-to-day actions. As a result, goals feel arbitrary and more demotivating than energizing.
- A retail chain is focusing on “increasing the online sales ratio” for executives, but the goal is to achieve a 90% success rate. This percentage is easy to achieve, making these bonuses an entitlement rather than an incentive.
- A private equity-backed turnaround gives teams huge capital upside for betting on the company's future, but milestones are never explained and talent doesn't understand what they're working toward.
These failures have a common root. The spectrum is determined not by the metrics you choose, but by how you communicate them. The same metrics work beautifully with opposing philosophies. What changes is how leadership frames it. Operating margin can be a rallying cry (celebrated monthly on your dashboard) or a background signal (silently embedded in your annual LTI roundup). Relative TSR can increase competitive urgency. “We are focused on beating the competition” or simply validating our results in comparison to our competitors.
Missed opportunities keep piling up. This is where compensation committees can play a role. Rather than leaving your communication strategy up to chance, you can clearly ask, “Where do you want to sit on this spectrum?” And do our leaders have the tools and authority to make the most of the intended approach? When boards treat communication strategy as an afterthought rather than a common design element, they risk treating compensation as an ineffective tool. What can be an important part of your strategy toolkit can leave your team demotivated, confused, and uninspired if not communicated thoughtfully.
Three compensation designs and their respective communication methods
The designs below are a broad starting point for your work and will help you choose one as an anchor and adapt elements of the others as needed. What follows is more than just a management exercise. The board can clearly ask the team, “What communication philosophy have you chosen, and do your leaders have the tools to implement it?”
Quiet program (background incentives)
A quieter rewards program enhances your strategy without dominating your day-to-day interactions. Rewards validate results, but they aren't the sharpest motivational tool in your arsenal. These are ideal for stable businesses with solid execution, as the plans typically pay out within a narrow range (90-110 percent of target), reflecting low leverage and stable economics. However, if your target feels like an entitlement, you run the risk of becoming complacent.
- communication approach Managers lead brief and general quarterly updates, including annual summaries. Leadership is understated (CEO/CFO letters, year-end town halls). Employees receive one or two charts each quarter. One-on-one managers translate corporate metrics into individual contributions. Materials are minimal and include a planning overview, progress cards, and FAQs. No fanfare, just consistent low frequency reinforcement.
- Sample message: “Our compensation supports consistent performance and responsible growth. We're focused on delivering on our promises and protecting long-term value. Every quarter, you'll see a simple progress card. At the end of the year, we'll review our accomplishments and recognize our teams for delivering with discipline. Thank you for doing your job the right way, every day.”
A bold equity plan (driving force for change)
Bolder programs are often designed to foster transformation, with significant long-term value creation benefits. These are high risk, high reward. Management shares the benefits meaningfully, but faces significant downsides if the transformation is not successful. They're perfect for pivoting, pivoting, or introducing new growth engines – moments that require leadership to take bold risks and think like owners. As such, they are usually not suitable for a wide range of populations where providing a consistent paycheck is more important.
- Communication approach: The CEO owns the narrative at launch and milestone updates. This pace is built around moments rather than daily metrics. After the initial town hall and published milestone roadmap, quarterly check-ins track progress without overload. The message needs to become part of the participant's mindset, tied to the vision rather than tactics, and embedded in their psyche. Total Rewards maintains a simple one-pager of “What it unlocks” and iterates rather than reinvents it.
- Sample message: “We're investing in the next chapter, and we'll share it together. Your capital is locked in as you create long-term value, whether it's a product launch, a revenue milestone, or a gate to profitability. This is the long game. You take risks, move the needle, and do what unlocks value. Together, we mark each milestone and define the path and upside.”
There are also versions intermediate between these two. Although accurate, scorecard-driven planning, which is frequently referenced in daily work, is an example of an “intermediate” design.
How to know what you need and when you need it
The best programs evolve with your business. Smart boards and management teams make choices based on where they are and where they are headed from a strategic perspective.
Be visible when strategy is changing (for example, a pivot, new business model, or M&A integration) or when performance has plateaued and a change in behavior is needed. Prominent programs also work when employee surveys show confusion about priorities, when the market is forcing existential choices, or when the entire organization needs to row in the same direction on one or two key outcomes.
When strategic milestones need to be achieved to steady the ship, or when employees report “compensation fatigue” due to continued plan changes, keep quiet. Choose this approach if your business execution is solid, your strategy is stable, and there is a risk that over-communication will make your pay feel manipulative or manipulative. Quieter programs also make sense for large, stable workforces in low-growth environments. When the needle doesn't move much, focusing attention on pay may not be the best use of an organization's energy or administrative bandwidth.
Context matters. As the number of employees increases, it becomes exponentially more difficult to manage and fairly account for high volatility. What fuels a 50-person startup can overwhelm a 5,000-person operation.
bring together
Before your next compensation committee meeting, ask yourself one question. Are we designing incentives for them to be heard, or do we want them to speak for themselves? Boards that treat this as a strategic oversight issue, rather than just an implementation detail, are far more likely to believe that compensation will actually drive the intended behavior and focus.
Essentially, compensation is a communication tool that creates focus and drives action. Done well, it can serve as a clear signal of alignment between strategy, values, and behaviors and can become a strong pillar of your employee value proposition. Done poorly, it can cause noise, confusion, and missed opportunities.
The real test is: If you asked 10 employees to describe what success looks like to them this year and how their pay reinforces that, would you get 10 similar answers? If not, the problem isn't your metrics, it's your story.
