Many annual bonus plans are formulaic. The final payout amount is determined by a calculation driven by performance against financial goals. In the wake of 2020’s volatility and uncertainty, many organizations are considering using discretion in their annual incentive plans.
Discretionary plan components allow compensation committees to evaluate some elements of performance more holistically. In this three-minute video, Daniel Rodda, Partner at Meridian Compensation Partners, explains the key advantages and disadvantages of using discretion.
Discretion allows for the evaluation of both what was achieved and how it was achieved.