Why Most Incentive Plans Fail—and How Thoughtful CEOs Get Them Right

Crafting a truly effective incentive compensation plan is simultaneously one of the most difficult and important tasks that leaders of small businesses face. Charlie Munger is known to have said “Never, ever think about something else when you should be thinking about the power of incentives.” He has also said “I think I’ve been in the top 5% of my age cohort, all my life, in understanding the power of incentives, and all my life I’ve underestimated them.” So if we can agree that structuring the right incentive plan is important, why does doing so tend to be so difficult? Based on many years of experience crafting these plans myself, here are just a few of the challenges that I encountered: (1) Avoiding unintended consequences and people "gaming" the system (2) How to balance individual goals vs. company goals vs. departmental goals (3) How to incentivize people on company goals when the achievement of those goals falls largely outside of their control (4) If or how to change a comp plan if circumstances change materially within any given year (5) How to manage changes in goals & targets across any two given years (6) The delicate balance between simplicity & detail (7) How to handle inherited employees whose salaries may fall outside of company-wide pay bands To help me untangle each of these challenges, I was joined this week by Stacey Carroll, who has spent her entire career leading HR organizations across a wide array of companies, with a specific focus on compensation & benefits. She has also spent the past 14 years leading “HR Experts on Call”, a company she founded where she acts as an interim HR leader for small and medium-sized businesses. Please enjoy! https://mineolasearchpartners.com/2026/01/20/why-most-incentive-plans-fail-and-how-thoughtful-ceos-get-them-right/