<PAGE>   1
                                                                   EXHIBIT 10.18

                        2001 INCENTIVE COMPENSATION PLAN

PURPOSE: The purpose of the 2001 Incentive Compensation Plan is to motivate and
retain key Officers and employees in order to maximize the performance of the
Company 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 key Officers and employees. The Incentive Compensation Plan is a core
component of the overall compensation package for Somanetics Officers and
employees and has been offered since 1996. The program affords the Officers and
employees the opportunity to be financially rewarded based on actual results and
affords the Company the benefit of conserving cash when business objectives are
not achieved.

PLAN SUMMARY: All Officers and non-commissioned, non-manufacturing full-time
employees participate in the 2001 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
2001 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: All Officers and non-commissioned, non-manufacturing full-time
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 2001 Sales Plan evaluated quarterly.
In the event that year-to-date performance versus the 2001 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, subject to the Company's achievement of its net loss plan.

         PLAN B. Certain Officers and 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
against pre-defined objectives and the Company's performance versus the 2001
Sales Plan and net loss Plan. An individual must achieve at least 50% of his or
her individual objectives to be considered for any incentive compensation under
this portion of the Plan. To the extent that actual sales results are at least
85% of the 2001 Sales Plan and the Company achieves its year-end net loss plan,
individuals receive incentive compensation in relation to their achievement of
pre-defined individual objectives. Measurement, and actual payment, if any, is
made at year-end.

         PLAN C. Employees who participate in Plan A, but do not participate in
Plan B, participate in Plan C. 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 against pre-defined objectives and the Company's achievement of its
year-end net loss plan. If the Company achieves its year-end net loss plan, an
individual must achieve at least 50% of his or her individual objectives to be
considered for any incentive compensation under this portion of the Plan.
Measurement, and actual payment, if any, is made at year-end.


<PAGE>   2



                2001 INCENTIVE COMPENSATION PAYMENT CALCULATIONS

PLAN A:  QUARTERLY PAYMENT

               YTD% TO SALES PLAN X FACTOR X SALARY X RATE X .125

         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>


PLAN B:  YEAR-END PAYMENT:

          % GOALS X SALARY X RATE X % SALES PLAN X % NET LOSS PLAN X .5

PLAN C:  YEAR-END PAYMENT:

% GOALS    X    SALARY    X    RATE    X    .5


Note: The President and/or the Compensation Committee reserve the right to
adjust actual incentive compensation paid to individuals under Plan B or Plan C
by +/- 25%.



<PAGE>   3



                     2001 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 Board reserves the right to pay bonuses to participants beyond those,
     if any, called for by the Plan.

-    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 at any time, at will.

-    Revenue and net income will be as reported in the Company's Form 10-Qs 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. And, 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 2001 Sales Plan.

-    Officer, or employee, participation in this Plan will be suspended during
     periods of unapproved absences 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 2001 Sales Plan. Payments
     under Plan B and Plan C, 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.