Where your company can make incentive compensation plan blunders

by on June 23, 2009 · 0 Comment POSTED IN: HR Info Center

The mix of short term and long term in your incentive compensation plan is vital

Understanding the basics of incentive compensation plan design requires an understanding of how to determine the appropriate performance measures for your organization as well as based on different roles within the organization.

The mix of market pay with market performance is particularly important as it relates to long-term incentive. I want to talk through employee communication and the compensation budget. Finally one of the critical perspectives from a strategic orientation is when we have superior performance, how much of those gains should be shared with employees who achieved them versus the shareholders / owners of our organization.

To put this discussion in perspective, the topic is a incentive compensation plan. I would put another bullet on this page if you’re thinking about it from a big picture and that is base salary. So, typically when you’re looking at pay components for an individual incentive compensation plan, the first component would be base pay, that’s kind of outside of today’s discussion.

The two components that are inside the discussion would be a annual incentive plan or incentive – short-term incentive that is based on a year or less. We’ll talk about who’s typically eligible, how are they funded, what’s the allocation of those dollars. And also performance measures, how to look at target compensation.

We’ll also look at long-term incentive plans much more common for executive. They’ll be defined as something taking a place over the period of more than a year. I want to look at the vehicle’s eligibility, allocation of those and again, the focus would be on performance measures and targeted award.

Edited remarks from the Rapid Learning Institute webinar “Incentive Pay Plan Blunders That Can Cost You a Fortune.” By Kevin Nussbaum and Ed Rataj

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