You are advising a privately held corporation. They have employees for which the

Question

You are advising a privately held corporation. They have employees for which they want to create incentive-aligning compensation. Because the company is not traded, there is concern about avoiding costly appraisals. They also want the employees to be required to stay for at least two years to get any benefit from the plan. What would you structure and why? Be specific about your plan so that it meets the needs of (1) no costly appraisals and (2) employees must stay for 2 years post-award to benefit.

Explanation / Answer

In such a situation the organization needs to document a contract in which the employees need to agree at the time of their joining that they will be eligible for any incentive-aligning compensation once they have completed two years in the organization and this incentive or additional compensation that the organization will provide will be a one time payment based on the outstanding performance of the employee and the incentive will be a percentage of the employee's salary that can range from 10 percent to 110 percent depending on the appraisal received. The compensation will be an amount which will divided into four equal portions and paid quarterly to the employees as performance bonus. This will reduce costly appraisals and employee will be eligible to receive this compensation only after they have completed the tenure of two years in the organization.

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