Executive Compensation Objectives
Executive compensation has multiple objectives, though these often remain unstated and are rarely articulated as a full set. In our experience, part of what makes executive compensation so complex and challenging is that it must meet multiple and sometimes conflicting objectives. The primary objectives that board compensation committee members should keep in mind in designing compensation policies fall into the categories below:
Alignment
- Aligning the interests of executives with those of shareholders and sometimes with those of other owners or providers of capital
- Aligning the interests of executives with those of other stakeholders
- Creating or reinforcing alignment of interests, objectives, and purpose throughout the company
Reinforcement
- Reinforcing the company’s purpose, vision, and mission
- Reinforcing and reflecting the company’s values
- Reinforcing the use of corporate resources to the optimal benefit of the company
- Reinforcing a sense of ownership (and actual ownership, through stock-based rewards) of the company by executives and other managers
Motivation/Reward
- Rewarding the achievement of the company’s short- and long-term strategy—and translating the strategy into measurable goals and objectives
- Motivating and rewarding the achievement of the company’s short- and long-term goals and objectives
- Motivating the rewarding the creation of long-term value
- Motivating and rewarding innovation and creativity
- Providing a fair and competitive level of compensation—fair to executives, shareholders, and the company
- Fostering a company-wide sense of urgency, intensity, and focus
Accountability
- Holding management accountable and creating/reinforcing a system of accountability with appropriate rewards and consequences
Communication
- Communicating the company’s short- and long-term goals and objectives
Talent Management
- Attracting and retaining high-caliber executives
Finally, executive compensation objectives should be tailored to an organization to help fulfill an organization’s purpose and mission. Contact The Delves Group to learn how we can help.
