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Short-Term Incentive Plan Design: A Brief Overview
A short-term incentive plan (“STIP”), or sometimes referred to as an annual bonus program, is a common tool used to reward employees for their individual performance and to incentivize the achievement of annual business objectives. When properly structured, STIPs can support the alignment of pay with performance, and motivate the desired behaviours and outcomes in an organization. This article provides an overview of common principles and design choices for STIPs, with a focus on its application in executive compensation.