This note lays out the principles and steps for designing effective staff incentive schemes. It focuses primarily on transparency and fairness in designing and implementing staff incentive scheme. It addresses critical design issues such as timing, frequency of incentive payout, and weight of bonus in total remuneration in implementing staff incentive scheme. The note briefly discusses five types of incentive schemes—individual incentive schemes, team based incentive scheme, employees’ stock ownership plan (ESOPs), profit sharing & gain sharing schemes and delayed benefits. The note also outlines 10 major steps of designing an effective incentive scheme.

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