Conventional compensation models are traditionally built around key tenets such as controlling fixed costs, providing an incentive for business performance and aligning the interest of executives with those of the company’s shareholders. While these tenets are robust, there is an emerging alternate view on how executives feel about their compensation. Are we as HR professionals getting it wrong about the principles of pay-for-performance and the risk-reward equation we believe motivates our senior executives?
The ideal model depends on the company’s compensation philosophy, culture of managing risk and reward, and the personality of the executive in question. Each company is different by nature and will go through different phases; it is therefore important to tailor a compensation plan that is best aligned with that company’s current business priorities.