Designing Your Plan

Now that you are familiar with the elements of poorly designed incentive plans as opposed to well-designed incentive plans, the design elements should make a good deal of sense to you. Here are 10 questions you must answer in order to design your plan:

1. What is the key indicator that will drive the plan (or in a few cases, two key indicators)?

2. Who will participate?

3. What is your threshold?

4. What is your stretch goal?

5. What is your total payroll? Number of employees?

6. What is your percentage share (to get to an incentive payout of roughly 10 percent at the stretch goal)?

7. Should your plan be capped with a maximum payout? If so, what is it and why?

8. What is your distribution method?

9. Should the plan be quarterly, annual, or something else?