Many employers offer compensation packages that include a mix of
both base compensation (guaranteed wages or salary) and incentive
compensation (at-risk variable compensation). While base pay tends
to be relatively straightforward, incentive compensation presents
unique challenges and planning opportunities.
Some companies spend considerable time and effort considering
whether (and demonstrating that) their compensation programs, and
the mix of base and incentive compensation opportunity provided to
employees, are consistent with industry trends and averages. There
is certainly a place for this type of benchmarking, but it sheds no
light on the question of whether the employer is receiving
meaningful value for its investment in incentive programs.
Accordingly, in addition to understanding whether an incentive
program is competitive, it is critical that an employer understands
(1) whether its program provides meaningful incentives, and (2) how
the various components of
