In July of 2006, Linda Herman, Senior Manager of Executive Compensation for Best Buy received a request from the company's CEO. He wanted the 2006 long-term incentive program to be more creative, offering an array of options to its employees in support of Best Buy's innovative culture.

Most companies have stayed away from offering flexible compensation programs because of the communication and administration challenges involved with them. Another drawback to offering choice in incentive programs is that companies fear a sense of inequity among employees who receive different benefits might lead to lawsuits. However, when done right, providing employees with choice can be a great tool for recruiting and retention.

Until 2003, Best Buy relied primarily on stock options to retain and reward its 2,600 managers and executives. Market volatility coupled with new accounting rules made the company want to try something new. That year, they replaced its stock option plan with a mix of performance shares, which employees got when certain levels of performance were met, and restricted stock.

In order to come up with a new plan, Herman and her staff teamed up with Ayco, a communications specialist group to help them survey their managers and executives. They designed the incentive plan simultaneously with the communication plan, recognizing the importance of gaining buy-in.

The final plan offers participants four choices. Choice 1 is 100% stock options with a four-year vesting schedule and a 10-year life. Choice 2 is 50% stock options and 50% performance shares, based on the company's total shareholder return compared with the S&P 500 over a three year period. The third and fourth choices are based on an internal metric that changes from year to year, based on annual performance targets.

Communicating the choices was the biggest challenge of the project, since employees had only from October 10th to 28th of last year to make a decision. Ayco sent out e-mails and worksheets and offered a webinar and one-on-one counseling to help employees make the decision.

By October 28th, 73% of Best Buy employees had made an election. The rest were defaulted into Choice 2. A majority of employees (85%) chose option 1 or 2.

The company is monitoring the effects of the program on retaining key employees. A majority of employees say the program is better than it used to be, and 99% say they understand the program better than they did before. 83% say that offering choice positively affected their decision to stay with Best Buy.