The Handbook of Incentive Compensation

Incentive plans are common in companies, but satisfaction with them is not. Surveys of human resource executives consistently show that incentive plans often do not live up to results. It seems obvious enough. If employees have a stake in how well their company does, they will be more engaged and work more effectively, but there are endless articles and books about how to get your incentive plan to work well and thousands of consultants specializing in incentive plan design, often with their own unique plans. If getting the plan right were easy, there would be much less of a market for both the books and the consulting. Of course, it is not simple. Some researchers, in fact, have concluded that incentive plans do little incentivizing and may create more problems than they solve. Still, too many companies report too much success with incentive compensation to just give up on the concept. In the decades of work the National Center for Employee Ownership (NCEO) has done on employee ownership plans, one of the most powerful incentive tools, we have also learned a great deal about non-employee ownership models that work consistently well. In this book, we have drawn that experience together. The first chapter offers an overview of why incentive plans do not always succeed. It is followed by chapters describing general principles in designing incentive plans and making them work; how to structure an effective profit sharing plan; how short-term incentives can work alongside longer-term employee ownership plans; how bonus plans and open-book management work in the Great Game of Business; and finally what the various equity incentive plans are, from ESOPs to stock options to phantom stock.