The Long and Short of Incentives
Possibly the biggest concern with financial incentives is how to balance the needs of the short-term and the long-term for an organization and the manager.
- Short-Term Incentives
Defined as benefits and payments given for goals achieved over a period of less than one year, they are usually a combination of formula-determined incentives
(based on a profitability measure of some sort) and/or a discretionary bonus.
- Long-Term Incentives
These are defined as incentives provided over a performance period longer than one year and often 3 to 5 years. In the past, Stock Options were the most
fashionable choice but more recently they have become less common.
Perks are Not Incentives
Non-cash benefits such as lavish retirement plans, opulent health insurance, interest free loans, financial planning advice and so on are considered perks and not usually considered part of pay-for-performance, although they are important to attract and retain talented managers.
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