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.

  1. 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.

  1. 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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