TWELVE WAYS TO STRENGTHEN YOUR INCENTIVE PLAN

David Glassman

Journal of Applied Corporate Finance, 1999, vol. 12, issue 2, 107-117

Abstract: This paper argues that most incentive compensation plans are ineffective for a variety of reasons, including: too many performance measures and too much complexity; ▪ arbitrary targets that are subject to intense lobbying by executives; ▪ caps and floors that narrow the payout range and stifle incentives; ▪ performance measured at a level too high to be meaningful for most managers, or too low to encourage teamwork; and ▪ a failure to integrate the incentive plan into the overall compensation philosophy. ▪ After examining these problems, the author offers 12 suggestions for implementing plans that support management's aspirations to create value for shareholders.

Date: 1999
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