Different Approaches to Using Discretion in your Annual Incentive Plans

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:

1. Full or 100% discretion;
2. Discretion as a weighted component;
3. 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.