December 10, 2019
Annual Incentives: “20 Questions” for Plan Design
– Liz Dunshee
This Willis Towers Watson memo identifies 20 questions to ask yourself when reviewing annual incentive plan design. They’re organized into these five categories:
1. Eligibility: Determine annual incentive plan eligibility based on market norms alongside one’s ability to impact the achievement of financial and nonfinancial objectives
2. Metrics and levels of metric measurement: Take time to understand your sector and your company goals, then select metrics accordingly
3. Performance ranges: Set the right target goals and calibrate the optimal performance ranges; use predictive analytics to model performance targets and ranges that are best fit for purpose through forecast performance simulations
4. Funding: Ensure you have the proper incentive plan funding mechanism in place and communicate how your plan is funded, in good times and bad
5. Calculation of payout: Work to ensure that pay and performance are within a realizable range of alignment