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                                                                   Exhibit 10.20

                        2004 INCENTIVE COMPENSATION PLAN

PURPOSE:          The purpose of the Incentive Compensation Plan is to attract,
motivate and retain qualified Officers and employees to maximize Company
performance against pre-defined operating objectives.

BACKGROUND:       Somanetics pursues a compensation program that includes
salary, incentive compensation, stock options and standard benefits (e.g. health
insurance) to achieve a market competitive package to attract, motivate and
retain qualified Officers and employees. The Incentive Compensation Plan is a
core component of the overall compensation package for Somanetics
non-commissioned Officers and non-commissioned, full-time, salaried employees.
The program affords the Officers and employees the opportunity to be financially
rewarded based on actual results and affords the Company cash conservation when
business objectives are not achieved.

PLAN SUMMARY:     Non-commissioned Officers and non-commissioned, full-time,
salaried employees in good standing with the Company participate in the
Incentive Compensation Plan. Potential incentive compensation under the Plan is
based on each participant's position, salary level, individual performance
against pre-defined objectives and Company performance against pre-defined
objectives. One half of actual incentive compensation is paid quarterly based on
year-to-date sales results versus the Sales Plan and the remaining one half is
paid at the end of the fiscal year based on performance against a variety of
pre-defined individual and Company objectives.

PLAN DETAIL:

         PLAN A:           Non-commissioned Officers and non-commissioned,
full-time, salaried employees participate in Plan A of the program. This portion
of the Plan represents 50% of the incentive compensation potential for
participants. The basis for incentive compensation for this portion of the
program is the Company's year-to-date results versus the Sales Plan evaluated
quarterly. In the event that year-to-date performance versus the Sales Plan is
<85%, no payment is made under this portion of the Plan. Actual payment, if any,
is made in the month following the completion of each fiscal quarter, except for
payment relating to sales >100% to Plan. Over achievement, if any, is measured
and paid at year-end.

         PLAN B.           Non-commissioned Officers and non-commissioned,
full-time, salaried employees participate in Plan B of the program. This portion
of the Plan represents the other 50% of the incentive compensation potential for
these participants. The basis for incentive compensation for this portion of the
program is the individual's performance in relation to their achievement of
pre-defined individual objectives. Measurement, and actual payment, if any, is
made at year-end.

NOTE:             New Officers and employees will be considered for
participation at the discretion of the President and/or the Compensation
Committee.

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                   INCENTIVE COMPENSATION PAYMENT CALCULATIONS

PLAN A:           QUARTERLY PAYMENT

<TABLE>
<S>                   <C>  <C>       <C>  <C>       <C>  <C>     <C>  <C>
YTD% TO SALES PLAN    X    FACTOR    X    SALARY    X    RATE    X    .125
</TABLE>

     FACTOR DETERMINATION:

<TABLE>
<CAPTION>
  % TO SALES PLAN                    FACTOR
---------------------                ------
<S>                                  <C>
     < 85%                              0
85% to 90%                             .5
90% to 95%                            .75
95% to 100%                            .9
     100%+                            1.0
</TABLE>

NOTE: ANY AMOUNT EARNED FOR OVERACHIEVEMENT OF THE SALES PLAN IN ACCORDANCE WITH
PLAN A IS PAID AT YEAR-END ONLY.

PLANB:            YEAR-END PAYMENT

<TABLE>
<S>       <C>  <C>      <C>  <C>     <C>  <C>            <C>  <C>   <C>  <C>
% GOALS   X    SALARY   X    RATE    X    % SALES PLAN   X    .5    X    % NET INCOME PLAN
</TABLE>

NOTE: THE PRESIDENT AND/OR THE COMPENSATION COMMITTEE RESERVE THE RIGHT TO
ADJUST ACTUAL INCENTIVE COMPENSATION PAID TO INDIVIDUALS UNDER PLAN B.
ADJUSTMENTS UPWARD WILL MOST COMMONLY BE MADE, BUT NOT BE LIMITED TO,
ADJUSTMENTS FOR SIGNIFICANT CONTRIBUTIONS NOT REFLECTED IN THE INDIVIDUAL'S
GOALS AND CHANGES IN AN INDIVIDUAL'S ROLES AND RESPONSIBILITIES. DOWNWARD
ADJUSTMENTS WILL MOST COMMONLY BE MADE, BUT NOT LIMITED TO, FOR FAILURES TO
PERFORM ONE'S GENERAL RESPONSIBILITIES.

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                        PROGRAM ADMINISTRATION GUIDELINES

-        This Plan shall be administered by the Company's Compensation
         Committee, which is authorized to interpret this Plan, to make, amend
         and rescind rules and regulations relating to this Plan, to make awards
         under this Plan, and to make all other determinations under this Plan
         necessary or advisable for its administration.

-        All determinations, interpretations and constructions made by the
         Compensation Committee shall be final and conclusive.

-        The Compensation Committee reserves the right to pay bonuses to
         participants beyond those, if any, called for by the Plan, less than
         those called for by the Plan, or to defer payment of bonuses based on
         the Company's cash position at the time of the planned payout.

-        Rights under this Plan may not be transferred, assigned or pledged.

-        Nothing in this Plan confers any participant any right to continued
         employment and does not interfere with the Company's right to terminate
         an employee's employment.

-        Revenue and net income will be as reported in the Company's Form 10-Q
         and 10-K.

-        An Officer, or employee, must be a full-time employee in good standing
         at the time of actual payment in order to receive any payment under the
         Plan. No payment will be made to any person who leaves the full-time
         employ of the Company before the payment date. No payment will be made
         to any person who is subject to a formal, written performance action
         plan.

-        Any over achievement payment earned due to actual revenue exceeding
         Plan revenue will be paid after the end of the fiscal year based on
         final year-end sales results versus the Sales Plan.

-        Officer, or employee, participation in this Plan will be suspended
         during periods of personal time off days beyond the allowable amount,
         long-term disability periods, or any other extended leave of absence.
         Actual payment reductions and/or discontinuation of participation in
         the program for the remainder of the fiscal year will be at the
         discretion of the President and/or the Compensation Committee.

-        Earned payments under Plan A, except for payments relating to over
         achievement, are intended to be paid after the close of each fiscal
         quarter based on year-to-date performance versus the Sales Plan.
         Payments under Plan B, and any over achievement relating to Plan A,
         shall be paid at year-end. In either case, actual payment will be made
         as soon as practicable after sales and net income are determined and
         the payment confirmed by the Compensation Committee.

-        Payments under Plan A will be made for "catching up" on a year-to-date
         basis. For example, if the Company finishes the first quarter below
         Plan, participants can recoup their full first quarter bonus not earned
         at the conclusion of the first quarter by "catching up" by the end of
         the second quarter.