Executive and Management Incentive Plans
We do not believe that any one compensation methodology or process will serve all organizations equally well. Therefore, we take the time to learn about your organization so that we can develop solutions that will work best for you. Consistency of the compensation approach with the overall organizational strategy and human resources management philosophy is critical.
We recommend a review of compensation strategy to assure that compensation practices are in line with overall business strategy and human resources management philosophy. Development of an overall compensation strategy prevents a patchwork approach to compensation program design. It unifies compensation efforts. Compensation strategy would address such issues as the following:
- who do we compete with for executives
- based on the quality of executives we desire, how competitive do we need to be in our pay practices
- what is the proper mix of fixed base pay, short and long term variable/contingent cash incentives and phantom stock equity incentives
- what is the best mix of corporate, division department, and individual incentives
- what type of behavior do we want to be rewarded and reflected in pay levels (time in job, performance, effort, team cooperation, quality of supervision provided by management)
- should some jobs be paid more competitively than others based on their role
- how should we separate the job responsibilities from the person’s performance in determining pay levels
Once the compensation strategy has been set, then we set base salary ranges for each executive position based on desired competitive position. Then development of short and long term incentive programs can begin. When developing incentive programs, we focus on identifying the types of behavior and results to be rewarded as well as on designing the formulas used to fund and distribute incentive pay. We believe that measures of performance should be simple, comprehensive of the executives’ area of accountability, and be linked to business strategy. Incentive rewards are designed to be commensurate with effort required and contributions made. Outstanding achievements call for outstanding rewards, average achievements call for average rewards, below average achievements call for below average rewards.
We pay close attention to the linkage between incentive plans for different employee groups. We use a top down organizational approach in designing plans. The top management incentive plans reward management for achieving key business objectives. The differences between levels in terms of performance measures hinges on identification of results which are controllable by the employee. As you move down the organizational ladder, the impact of the individual on company profitability diminishes so additional or alternate measures need to be utilized which more directly reflect the employee’s area of accountability.