Short-Term Incentive Plan
What is this form?
The Short-Term Incentive Plan is a detailed legal document designed to help corporations structure performance-based bonuses for their executive officers. This form outlines the criteria and procedures for providing cash compensation based on specific performance targets, ensuring compliance with tax regulations. Unlike other compensation agreements, this plan is specifically tailored for short-term incentives related to annual business goals.
Main sections of this form
- Purpose: Describes the intent to attract and retain executives through performance-based bonuses.
- Administration: Details the roles and responsibilities of the Compensation Committee in overseeing the plan.
- Eligibility: Specifies the executives eligible for awards based on their positions within the company.
- Awards: Outlines how and when performance-based awards are granted and calculated.
- Performance Targets: Lists the metrics used to assess performance, such as earnings and revenue.
Situations where this form applies
You should use the Short-Term Incentive Plan when establishing a bonus structure for corporate executives based on measurable performance objectives. This form is particularly useful during annual performance reviews or when implementing a new compensation strategy to enhance employee motivation and align their goals with corporate objectives.
Who should use this form
This form is intended for:
- Corporations looking to implement a structured bonus plan for their executives.
- Human resources professionals involved in developing compensation packages.
- Members of the Board of Directors or Compensation Committee responsible for executive pay.
How to prepare this document
- Identify the key performance metrics that will determine bonuses, such as earnings or sales targets.
- Specify the eligibility criteria for executives who may participate in the plan.
- Outline the roles of the Compensation Committee and how they will administer the plan.
- Set the performance targets and how they will be measured during each fiscal year.
- Include any provisions for adjustments in awards in response to corporate events or changes in circumstances.
Does this form need to be notarized?
In most cases, this form does not require notarization. However, some jurisdictions or signing circumstances might. US Legal Forms offers online notarization powered by Notarize, accessible 24/7 for a quick, remote process.
Avoid these common issues
- Failing to clearly define performance metrics, which can lead to confusion and dissatisfaction.
- Neglecting to update the plan regularly to reflect changes in company strategy or market conditions.
- Overlooking eligibility restrictions that may exclude certain employees inadvertently.
Benefits of using this form online
- Convenient access to templates that can be customized for your company's specific needs.
- Editability allows for quick updates to reflect changes in company policies or regulations.
- Secure storage and retrieval of your legal documents, ensuring compliance and accessibility.
Legal use & context
- The plan must comply with Section 162(m) of the Internal Revenue Code to ensure that bonuses are tax-deductible for the company.
- It is essential to document performance metrics clearly to avoid disputes over award distributions.
- Consultation with legal and tax professionals is advisable to structure the plan correctly.
Main things to remember
- The Short-Term Incentive Plan is vital for aligning executive performance with corporate goals.
- Accurate documentation of eligibility and performance metrics is crucial for successful implementation.
- Regular updates and thorough communication about the plan's terms can enhance its effectiveness and acceptance.
Form popularity
FAQ
Once an incentive award is paid to a non-exempt employee who has worked overtime, a new Average Straight Time Hourly Earnings (ASTHE) must be calculated. The math is the base pay for all hours worked, plus any non-discretionary incentive pay, divided by the number of hours worked.
Short-term incentives are used to create focus on short-term or immediate goals, and align rewards with individual and business performance. Long-term incentives are typically designed for executives who make strategic decisions for the company.
Annual incentive opportunity is typically expressed as a target percentage of the executive's salary, and plans are typically constructed to provide threshold, target and maximum levels of performance which then generate corresponding threshold, target and maximum levels of pay.
Examples of common short-term incentive pay plans include: Annual incentive plan. A pay plan that rewards the accomplishment of specific results. Rewards usually are tied to expected results identified at the beginning of the performance cycle.
STIP Award means a performance bonus earned pursuant to the terms of the Corporation's Short-Term Incentive Plan that may be settled in any combination of cash or Common Shares (either issued from treasury or purchased in the open market).
Short-term incentives, also often referred to as annual incentives, are intended to compensate executives for achieving the company's short-term business strategy based on achievement of goals by the board compensation committee.
Short-term Incentive Calculation The target STI is calculated by multiplying an employee's year-end annualized Total Target Compensation (base salary including Target Commission and Target MBO) by the STI target percentage associated with his/her band and exemption status.
