PLAN PHILOSOPHY

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Lots of Discretion

You see bonuses largely as a necessary expense needed to stay competitive in the marketplace.

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Good Intentions

Your incentive plans are intended to change employee behaviors.

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Strong Practices

Your incentive plan seeks to align individual employee objectives with larger organizational goals

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Partnership

Your bonus plan is part of your commitment to share value with employees--as if they were partners in the business.

ELIGIBILITY

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Lots of Discretion

You limit participation to a relatively few employees who require a bonus as part of their pay package.

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Good Intentions

You would like to include a broad group of employees in your plan, but can't justify it from a budgeting perspective.

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Strong Practices

You provide bonuses for those positions that commonly receive them within your industry.

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Partnership

You believe every employee can create financial value for the company and therefore try to include all or nearly all employees in your plan.

BUDGETING AGAINST FINANCIAL GOALS

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Lots of Discretion

You do not tie bonuses to the overall financial objectives of the organization. You "wait and see" whether bonuses will be paid and then subjectively determine amounts.

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Good Intentions

You're usually uncertain about financial performance so your goals are set fairly low. Thus, you almost always pay some bonuses, even in slow years.

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Strong Practices

You establish a bonus pool as part of your annual budgeting and planning process. The pool represents the sum of employee target awards.

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Partnership

Your plan is carefully designed to be both realistic and challenging. It establishes a firm baseline performance level for minimum payments and provides significant upside potential for the achievement of stretch goals. There is no cap.

KEY PERFORMANCE INDICATORS

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Lots of Discretion

You do not identify specific factors that drive bonus calculations.

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Good Intentions

You select multiple specific metrics for every employee, every department, and every business unit.

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Strong Practices

You carefully choose a few performance factors. Employees are expected to focus on company as well as department or division goals. Metrics are measurable and relevant to business success.

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Partnership

You primarily rely on company-wide results, believing that a successful year should be celebrated by all employee-partners. Secondary results (Individual or Department) may modify bonus awards.

LINE OF SIGHT

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Lots of Discretion

Your employees do not see how their individual performance can affect bonus payment.

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Good Intentions

Your employees understand the company must achieve certain results for bonus payments to occur, but they probably see limited, if any, connection to their jobs.

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Strong Practices

Your employees clearly see how they can directly influence plan results.

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Partnership

Your employees understand the company's mission and business plan and see a bonus payment as an indication of value creation.

COMMUNICATION

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Lots of Discretion

Your employees are unsure if there will be any awards paid at all.

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Good Intentions

Your employees learn about their plan value at or near the time you make the payments.

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Strong Practices

You announce potential bonus amounts early in the year. Participants learn their bonus amount when it is paid.

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Partnership

You communicate plan details early in the year, forecast results periodically, and quickly reveal plan values at completion.

FLEXIBILITY

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Lots of Discretion

You make payments on a completely discretionary basis.

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Good Intentions

Your plan payments are determined strictly by the achievement of the plan metrics.

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Strong Practices

You modify payments based on each employee's performance appraisal.

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Partnership

You expect to recognize exceptional contributions by employees. You budget a plan reserve to allow for such expectations.

PLAN OPERATIONS

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Lots of Discretion

You handle plan operation decisions on a case-by-case basis.

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Good Intentions

You have a general set of plan management policies but they are not widely known within the organization.

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Strong Practices

You have predetermined policies to handle employee status changes. You manually calculate payout modifications or exceptions.

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Partnership

You have an automated system for handling status changes while allowing flexibility for reasonable exceptions.

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