Incentive Compensation Consulting | Proven Incentive Plan Designs

Incentive compensation plans allow organizations to focus attention on desired performance and behaviors.
Incentive pay is tied to achieving specified performance, eliminating entitlement uncertainty.
Companies are motivated to plan ahead and identify expectations.
By putting a portion of the compensation “at risk,” organizations can control fixed costs associated with salary increases.
Incentive pay is not typically included in calculating benefits, which can save companies money in the long run.
Incentive compensation programs help organizations recruit better candidates, as prospective employees recognize the opportunity to earn higher compensation based on their contributions.
Incentive pay programs allow a company to tie pay to results.
Since incentive compensation programs are typically designed to be “self-funded,” funds are available when goals are achieved.
Including incentive pay as part of the overall compensation package allows companies to remain competitive within their sectors.

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Annual Incentive Compensation Programs

Annual incentive compensation plans provide incentive pay based on short-range performance (typically 12 months or less). These programs may consist of short-term incentives and sometimes include a component tied to long-term incentives.

Annual incentive compensation plans help employers:

Attract and retain key employees.
Increase productivity and profitability.
Focus attention on the achievement of desired goals and objectives.

To achieve these goals, annual incentive programs focus on desired company results, tie pay to performance, and provide a competitive total cash compensation package (with a portion “at-risk” depending on results).

In some cases, long-term incentive pay is the largest portion of total compensation for many executives. They can be stock-based, cash-based, or a combination of both.

Common vehicles for long-term incentive pay are:

Restricted Stock
Restricted Stock Units
Stock Options
Non-Qualified Stock Option
Incentive Stock Options
Performance Units
Stock Appreciation Rights (SARs)

Developing an effective LTIP can be time-consuming. Organizations must consider the incentive plan’s tax and legal implications, as well as the plan's ability to drive the desired behaviors while retaining top talent.

The lasting benefit of an effective long-term incentive compensation plan is invaluable to the success and viability of an organization.