Incentivising key executives and staff is often in the business’s interests. Implementing the right scheme – one that works – can be more difficult and often goes wrong.
Here are some key considerations and common pitfalls.
Considerations
1. What category (or categories) of employees is being incentivised? Consider each separately (for example, executives may be incentivised in line with company performance more than key account managers)
2. What are the key objectives (now and in the next five years) for each category
3. Whether any awards should be discretionary or entitlements
4. Whether awards should be based on the performance of the individual, team, company, group or a combination
5. How performance is measured, EBITDA, Net Assets, and who determines that
6. Whether interests of the category of employees needs to be aligned with the company
7. Whether the award should include equity, options, cash bonus or a combination
8. Whether any element of the award should be deferred
Pitfalls
1. Forgetting to deal with any existing bonus and other incentive arrangements that may be in place either through custom and practice or in writing
2. Not dealing with termination of office or employment in different circumstances
3. Over-engineered schemes for simple objectives
4. Inconsistent definitions giving rise to considerable uncertainty
5. Tax efficient schemes not applicable in international employers
6. Inconsistencies between corporate documents and practice, rendering the scheme unworkable or ineffective
Management Incentive Schemes should be simple. Over-engineering schemes risks losing sight of the objective and rendering the schemes uncertain and ineffective – especially for international employers.
With extensive experience of advising national and international businesses, TandonHildebrand can be your interface with professional service providers and your people/HR support.
