The Bucket System For Compensation Decision Making

In the beginning of our careers, our compensation is determined by our bosses. But usually, the process by which those bosses get guidance is largely hidden from us. But what most companies use to determine those amounts is what is called the Bucket System. Here's what it is and how to use it.

Now that you're an executive, you're going to start being exposed to broader decisions on compensation. For the top execs in orgs, there is a small senior group that determines not just salary increases, but also performance bonuses, equity (stock options, and restricted stock), long-term incentives (LTIPs), deferred compensation, and things like company cars, jet usage, club memberships, and the like. Again, typically everything beyond salary increases and bonuses is reserved for more senior executives, and are determined (sometimes for people for whom you are responsible) by an executive compensation committee.

In the middle of the organization, more junior executives are usually given an amount - typically a percentage increase - that they are to be used to differentially reward their people based on performance. This is The Bucket System, and it is used to address salary increases, and in some cases bonuses for short term performance.