TWO CONDITIONS FOR AN EFFECTIVE INCENTIVE PLAN

Incentive compensation has been one of the most actively studied topics in economics, accounting and management research in the past two decades. An active and fruitful interplay between theory and empirical research has generated a large, mature and robust literature. Much of that literature is technical and difficult for the practitioner to access, but the insights are practical. Designing an effective incentive plan will always require judgment and understanding of individual circumstances. This article describes how modern research can provide rigor and structure for the design challenge