Publications
Publications
- January–February 2021
- Harvard Business Review
Compensation Packages That Actually Drive Performance
By: Boris Groysberg, Sarah Abbott, Michael R. Marino and Metin Aksoy
Abstract
By aligning executives’ financial incentives with company strategy, a firm can inspire its management to deliver superior results. But it can be hard to get pay packages right. In this article four experts break down the key elements of compensation and explain how to put them together effectively. When designing packages, boards must make decisions about the proportion of fixed versus variable pay, short-term versus long-term incentives, cash versus equity, and group versus individual rewards. Many look at the copious data available on executive pay and benchmark their plans against those of their industry peers. The mix is also driven by company size, region, culture, and risk appetite. A good plan always begins with a firm’s strategic goals, however. Is the company striving for profitable growth, a turnaround, or a transformation? Is it trying to compete with public companies as a private entity? Each scenario calls for a different plan design. The COVID-related economic crisis may also alter plans. If targets become unachievable, incentives will lose their power and need to be revised—offering firms a chance to incorporate measures that serve stakeholders’ interests better.
Keywords
Citation
Groysberg, Boris, Sarah Abbott, Michael R. Marino, and Metin Aksoy. "Compensation Packages That Actually Drive Performance." Harvard Business Review 99, no. 1 (January–February 2021): 102–111.
About The Author
