There is no one-size-fits-all approach to incorporating discretion into annual incentive plans. The chosen approach will depend on company size, industry, business strategy, and many other factors.
In this two-minute video, Daniel Rodda, Partner at Meridian Compensation Partners, outlines 3 primary approaches to building discretionary components into annual plans:
- Full or 100% discretion;
- Discretion as a weighted component;
- And discretion as a modifier.
All approaches require clear goals and targets, alignment with strategic objectives, and trust and collaboration between executives and compensation committees.