What's the Right Level of Long-term Incentives

Q: What's the right level of long-term incentives?

Answer: The use of long-term incentives has become more prevalent over the past 15 years, with the portion of the Total Compensation package that it comprises increasing dramatically. While there's no standard formula for determining the value of long-term incentives for executives, there are a number of factors that a company should consider when determining the appropriate level of payment, including.

· External Competitiveness – Identifying levels that peers/competitors within the industry are paying for similar positions.

· Internal Equity – Considering the hierarchical level of the executive within the company.

· Performance – The financial performance of the company and the performance of the individual should be considered.

· Implications of the Company – Tax burdens, other liabilities, and regulations must be considered when determining long-term incentive payments.

The value of long-term incentives can vary dramatically between companies and among individuals within companies. Long-term incentives can make up 35% to 72% of the Total Compensation package, depending on the company and the position the executive holds.

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Paul R. Dorf is the Managing Director of Compensation Resources, Inc. He is responsible for directing consulting services in all areas of executive compensation, short and long-term incentives, sales compensation, performance management systems, and pay-for-performance salary administration. He has over 40 years of Human Resource and Compensation experience and has held various executive positions with a number of large corporate organizations. He also has over 20 years of direct consulting experience as head of the Executive Compensation Consulting Practices for major accounting and actuarial/benefit consulting firms, including KPMG, Deloitte Touche Tohmatsu (formerly Touche Ross), and Kwasha Lipton.