When compensation is managed carefully, it aligns people’s behavior with the company’s strategy and generates better performance. If targets become unachievable, incentives will lose their power and need to be revised-offering firms a chance to incorporate measures that serve stakeholders’ interests better.ĭecisions about executive pay can have an indelible impact on a company. The Covid-related economic crisis may also alter plans. Is the company striving for profitable growth, a turnaround, or a transformation? Is it trying to compete with public companies as a private entity? Each scenario calls for a different plan design. The mix is also driven by company size, region, culture, and risk appetite.Ī good plan always begins with a firm’s strategic goals, however. Many look at the copious data available on executive pay and benchmark their plans against those of their industry peers. When designing packages, boards must make decisions about the proportion of fixed versus variable pay, short-term versus long-term incentives, cash versus equity, and group versus individual rewards. In this article four experts break down the key elements of compensation and explain how to put them together effectively. But it can be hard to get pay packages right. By aligning executives’ financial incentives with company strategy, a firm can inspire its management to deliver superior results.
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