The incentive compensation process focuses on the calculation and payout of variable pay and adjusting to improve revenue generating activities and employee performance.

An effective incentive compensation process is built on a set of well-defined and clearly stated business objectives. Key objectives articulate the ideal performance results that the company expects from that process. When determining what process improvements are needed to reach the next level of maturity, evaluators should consider the importance of the process being addressed. As the importance of a process increases, its desired capability increases.

This tool features a number of leading practices for the incentive compensation process, including:

• Offer compensation plans that provide a stable base with variable linked to performance.
• Develop compensation plans that support strategic goals.
• Establish compensation plans that are equitable and competitive.
• Link top management's compensation to company performance.
• Integrate human resources' information system with payroll.