Pay-for-performance compensation is the most pressing issue in board rooms today. As companies move toward more entrepreneurial management styles and incorporate more sophisticated metrics like EVA ® and CFROI for measuring shareholder value, questions about compensation proliferate.
Is the expense of executive compensation justified in the eyes of shareholders? Do the salaries, bonuses, stock options and more add up to ongoing, reliable leadership? Is that leadership creating value?
If not, then there's little surprise when incentive compensation issues raise a red flag with shareholders. Yet, we believe that shareholders have no qualms in compensating the most talented managers for superior returns. The level of pay is a secondary concern when the pay is really for performance. With several highly visible exceptions, it's not how much managers make, it's how they make it.
Unfortunately, in most companies the connection between pay and performance is tenuous at best. Many executives receive the benefits of stocks and bonuses with little or no down-side risk. This can foster an environment of short-sighted gains and self-preservation management styles. Rather than being motivated to focus on what's best for the company, managers are motivated to protect their own positions.
From the shareholder's perspective, the primary objective of executive incentive compensation should be to reward those who create lasting value, not short term profits, and to differentiate management's contribution to share value from the generalized contribution of its and the economy.
Finegan & Company can help your company replace a no-win situation with a win-win situation. Although no F&C plan is the same, we will ensure a plan that:
We are constantly challenging traditional ideas about strategic pay practices. The results are innovative structures that accommodate our clients unique objectives, and really do result in top performance. These innovative plans typically attract the attention of aggressive management teams that are confident about their ability to produce results. They also recognize the value of these plans in attracting and retaining talent.
To learn more about our views on incentive pay design, click on the Obtain Information option on the sidebar.