Compensation involves more than just a worker's paycheck. For a company's top performers, the compensation challenge is even more acute. Too little incentive and you don't maximize the employee's potential; too much constitutes a drag on the company's earnings.

Further, the perfectly designed incentive package still won't fix a business with a bad internal culture. Whether the company is big or small, pay alone won't cure a negative working environment.

I recently read AIG's incentive pay agreement for the top managers at its financial products unit (the unit whose credit default swaps destroyed the company). The incentive package included a  wonderfully complex formula that paid the managers only for true long-term, profitable growth.  But as an incentive, the package proved worthless because of the division's culture of avarice and greed.

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