The term “Management Incentive Compensation” is one I really dislike.

Company SEC filings are filled with this term or some version of it to describe endless Plans. The Annual Management Incentive Plan. The Long Term Management Incentive Plan. The Stock Option Plan etc.

It is humorous to me that these are called “Management Plans”. Within most corporations these various Plans are invented and sold to the Boards of Directors and then filtered out to the shareholders for the benefit of the executive or senior managers who receive the bulk of any Plan payout. But by calling them management vs. executive plans and by actually including, often in a very token way, middle managers, the Plans don’t sound as top heavy or biased in favor of the senior executives as they really are.

For example, in a typical, large public company Annual Incentive Plan, a mid level manager with a $100,000 salary has a bonus opportunity of say 10% or $10,000. The CFO with a salary of $400,000 has a bonus opportunity of 50% or $200,000. So the CFO starts off with a salary 4 times as large but can get a bonus which is actually 20 times as large! So is this really a Management Incentive Plan or an Executive Incentive Plan as far as the payout is concerned? Sadly in most firms, its all about the senior executives. Trust me on this one.

The same large public company probably has a Stock Option Management Incentive Plan. Here the mid level manager is lucky if they get a stock grant of 1,000 shares. The CFO gets 20,000 shares. Again 20 to 1. By the way, without a staff of these mid -level people doing most of the work to meet the various goals to earn the incentive, the executive Managers would rarely get theirs; incentives, that is.

Over the years, I tried to push my companies to level this out a bit. It is not a very popular subject with most of the other Senior Executives and especially with the Senior H.R. people who create these Plans. At one of my firms, to get more stock options for another Vice President who worked for me, I volunteered to give up some of my option allocation. This was, of course, never suggested before so no one knew what to do. Finally the Vice President was somehow granted more options, but I had to keep my allocation, or the whole executive team would have lost some of theirs, again not popular.

Generally, in most large companies, there is very little discussion about what the mid-level or junior officers should receive in these various Management Incentive Plans. But there is a lot of discussion about what executive managers believe they should get.

So be honest! Call them Executive Incentive Plans!

Newsflash! The government of Switzerland is considering a law which would limit executive salaries to 12 times those of the lowest-paid employee. They call this the 1:12 Initiative for Fair Pay. The idea being that no one executive should earn more in one month than the lowest-paid people earn in a full year. According to supporters of this proposed law today the top Swiss executive make 93 times more than the lowest workers. Fifteen years ago this ratio was only 14 times so the goal of 12 is at least possible. Industry groups are opposing the idea. Really?

Will this idea ever be considered in the U.S.? Based on my experience, I sadly doubt it. We seem to believe in getting the most you can get even if it is excessive, not in anything than seems to resemble fairness in pay.

In my book, The Business Zoo, we will talk a lot about Incentives versus Rewards versus Gifts. We will also discuss some incentive programs that I have found do make sense versus those which just increase that old misused term, Management Incentive Compensation.