Posts Tagged ‘executives’

Ralph believed that one of the most powerful levers he could use in building a value-creation focus throughout EG was the compensation system. At present, the package contained relatively little performance-based incentive for top managers. They did receive a bonus, but it was a relatively modest proportion of total compensation. They also received stock options, but few viewed these as significant in terms of their ability to build capital for doing a good job. It was clear to Ralph that the top-management incentives did not focus on value creation. Bonus payouts were geared toward achievement of earnings-per-share targets, which as he knew did not always correlate well with creating value. In addition, the compensation of business-unit managers was tied more closely to the performance of EG as a whole than it was to the fortunes of their particular business unit.
Ralph figured that several schemes were capable of meeting his objectives. He asked his human resources executives to consider phantom stock for each of the divisions; a deferred compensation program structured around the economic profit targets that the businesses were adopting, and using the attainment of goals on particular value drivers as a basis for compensation awards.