Incentive Compensation Design

Well-designed incentive bonus plans can be effective components of an organization’s overall compensation program. Many nonprofits avoid incentive plans, either because their mission makes individual performance measurement difficult or in the belief that bonuses aren’t appropriate in a nonprofit setting.

Nevertheless, where incentives are appropriate they can:

  • Tie compensation expenses to financial results.
  • Enhance the competitiveness of your compensation program without increasing fixed costs.
  • Provide a stronger relationship between compensation and performance.
  • Focus executives on specific board-approved goals.

SmithPilot has special expertise in helping you define effective incentive plans, including the following steps:

  • Determining who should participate in the incentive plan
  • Setting target incentive amounts and comparing with market levels
  • Defining performance goals for funding the overall bonus pool and determining individual bonuses
  • Creating a strong relationship between the organization’s long-term strategy and the operation of the incentive plan
  • Developing plan terms and documentation, including provisions to ensure that the board has the appropriate controls
  • Deciding whether payments should be in cash or deferred or both
  • Ensuring that the plan and projected payments will be reasonable from a regulatory perspective, including the Intermediate Sanctions regulations

For information on how we can help design or improve your management incentive plan, please contact us at

Don’t miss our blog posting on incentive compensation.