Oversight of Executive Compensation: Incentive Compensation and Performance Measurement

 

Key Takeaway: Design Incentives With Purpose

• Incentive design is one of the most powerful tools for connecting executive pay to strategy and performance.
• Incentive plans need to clearly define success, use metrics that support the company’s value-creation model, establish rigorous performance goals, and create payout opportunities that are meaningful, balanced, and defensible.
• No formula is perfect and no incentive plan can anticipate every business condition or capture every dimension of performance.
• The goal is to create a disciplined framework that motivates executives, supports accountability, balances risk and reward, and gives the committee a credible basis for evaluating outcomes.