Discretion, Done Right

As Q2 results roll in and economic uncertainty continues, it’s becoming increasingly clear to some companies that short-term incentive payouts may fall short. Semler Brossy makes the case for a well-designed discretionary scorecard as a tool that can offer hope, provide direction, and a proactive framework for decision-making when traditional metrics fall flat.

Three key tenets of smart discretion:

• Prioritize long-term growth over short-term challenges. The scorecard helps ensure that short-term dips don’t eclipse long-term progress.
• Fair game -up or down. Discretion shouldn’t only cushion the bad years. The ability to make both upward and downward adjustments lends credibility and consistency to the process.
• Right-sized rewards. Adjustments should be appropriately sized with the goal of getting closer to threshold – not over target.

When discretion makes sense: The article highlights two situations where discretionary adjustments can reinforce rather than dilute pay and performance philosophy.

1.  When management moves the needle. Think: launching a product early, streamlining sourcing operations, or overhauling customer service. These aren’t always captured in the original incentive plan—but their impact on long-term value is undeniable.
2. When the company outperforms its peers. If your company is outpacing competitors, even in a down year, that performance is worth recognizing.

Building the Scorecard: Start by identifying what success looks like now. In an unpredictable environment, that means selecting a few, unweighted strategic metrics - the kind that support long-term priorities and highlight areas under an executive’s control.

• The scorecard isn’t binding—and it shouldn’t promise a payout.
• It complements the incentive plan, providing structure and clarity when results are murky.
• Metrics should reflect adaptability, strategic progress and outperformance relative to peers.

The bottom line. A well-crafted discretionary scorecard doesn’t replace your incentive plan. Scorecard discussions should occur at each Compensation Committee meeting.

Want proof? Check out Semler Brossy’s three case studies featuring companies that focused on adapting to disruption, building for the future and outpacing the competition.