Among many problems as others have pointed out, you are also incentivizing your entire staff to heavily pursue leadership positions. This means a great technical person would have no choice but to take on management tasks to increase his/her compensation. You not only lose great technical talent in the process but you end up with "leaders" who probably don't like management as much. Every one I know in the valley has learned that comp should never be tied to "leadership component". In many top tier companies it is possible for a person in non-management position to get same or better comp as management position - everything else being same.