Designing Compensation Plans to Manage Today’s Risk Environment

In light of the oil-drilling disaster in the Gulf of Mexico as well as the series of recalls in the auto industry, this article looks at how best to manage risk in the design of incentive compensation plans. This includes a look at the myriad risk issues and how boards can properly evaluate those ri...

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Bibliographic Details
Published in:Compensation and Benefits Review 2011-01, Vol.43 (1), p.17-22
Main Authors: Moynihan, Daniel P., Wells, Sara
Format: Article
Language:English
Subjects:
Automobile industry
Compensation plans
Reputation management
Risk management
Online Access:Get full text
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Summary:In light of the oil-drilling disaster in the Gulf of Mexico as well as the series of recalls in the auto industry, this article looks at how best to manage risk in the design of incentive compensation plans. This includes a look at the myriad risk issues and how boards can properly evaluate those risks and build in safeguards in company pay plans to mitigate these concerns. The key risk areas evaluated are strategic, cultural, performance measure and reputational risk. Finally, the authors suggest examining whether the plans in place align with business goals and ensure the company’s business reputation is preserved and is not tarnished. Without effective mitigation, compensation risk can damage the future of the company and its leaders.
ISSN:0886-3687
1552-3837
DOI:10.1177/0886368710390490