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The Trouble With Incentive Compensation
Incentive compensation in many organizations has evolved over recent years.
Executive Summary
Management must manage. An incentive compensation formula will not be sufficient, argues Willis Re's David Ingram.
Here, he describes the evolution of incentive compensation programs and uses examples to demonstrate why they will fail to align incentives with corporate goals. This applies to all corporate goals, including risk, according to Ingram, whose expertise is in ERM consulting.Executive Summary Management must manage. An incentive compensation formula will not be sufficient, argues Willis Re’s David Ingram.Here, he describes the evolution of incentive compensation programs and uses examples to demonstrate why they will fail to align incentives with corporate goals. This applies to all corporate goals, including risk, according to Ingram, whose expertise is in ERM consulting.
What started with the intent to increase the alignment of top management with shareholder interests, later developed into a means of replacing partnership profit-sharing in investment banks. In the most recent evolution, it now competes with hedge fund manager type compensation.
