Tailor Incentive Compensation to Strategy
Because incentive compensation structure is one of the tools top management uses to pursue corporate goals, it must be made consistent with strategy. When designing the structure, a company's top executives should think of it in terms of four aspects of corporate policy: short run versus long run, risk aversion versus risk taking, interdivisional relationships, and company-division relationships. This article considers all of these aspects in the context of six elements of incentive plans: financial instruments, performance measures, degree of discretion in allocating rewards, size and frequency of awards, degree of uniformity, and funding.
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