December 1, 2022

The Deadly Sins of Incentive Comp – A Recap


Randall Bolten and Bob Berry

If your company has a December 31 fiscal year, you’re probably in the throes of finalizing your 2017 incentive comp plans. So in the spirit of avoiding the most egregious compensation errors, let’s revisit the Deadly Sins we’ve discussed on this site over the past year or so (for links to the original blog posts, click on the numbers):

#4 – Too much in all-or-nothing bonuses. Don’t throw too many dollars at accomplishments that may mean a lot to an individual, but mean little to the enterprise.  

#5 – Capping incentive compensation. Why reward your top producers by freezing their pay?  

#6 – Too many compensation elements. For many, many reasons, less is more.

#11 – Schemes that reward “pulsing the plan”. If you have an accelerated compensation plan – an approach I strongly support, by the way – please make sure that you’re not using boneheaded math logic.

#12 – Recoverable draws. However well-intentioned, recoverable draws are one of the worst ideas in the entire discipline of incentive compensation.

#16 – Changing the plan significantly every year, or even more frequently. When it comes to comp plans, people dislike and mistrust a moving target.

#17 – Communicating next year’s comp plan details before the current year is over. For 12/31 companies, this train has already left the station. For the rest of you, don’t tip your hand too soon.

#18 – Delegating the responsibility for communicating the plan too far down in the organization. CEOs, CFOs, and sales VPs shouldn’t dodge their responsibility for communicating the comp plans. Among other reasons, the sales force will appreciate knowing that the suits actually understand those plans.

You’ll note that only eight of a possible eighteen (or more) Deadly Sins are listed above. We’ll get to the missing ones in due course, so stay tuned.

Designing effective, sensible incentive compensation plans is a sacred responsibility, and public trust in businesses depends on it. In 2017, please let’s have no Wells Fargos, no Veterans Administrations, and no AIGs.