Search
 

Finance’s Critical Role in Incentive Design

Why companies need to tap the functions analytical tools and quant mind-set in pulling together incentive compensation plans.

By Eric Hosken, Takis Makridis | Updated on July 30, 2014
The role of the finance function has changed dramatically over the past couple of decades, and it continues to evolve. Traditionally, the primary responsibilities of finance included financial reporting, cash flow management, and activities around securing corporate funding. Increasingly, though, finance leaders are being asked to play a more strategic leadership role in their organization.

One area in which leaders of the finance function can be particularly instrumental in reinforcing corporate strategy is in the design of companywide incentive compensation. Finance can help with the selection of performance measures, the evaluation of possible performance targets, and an assessment of the cost and affordability of alternative compensation-program designs. Getting an analytical finance manager’s perspective is especially important for companies evaluating long-term incentive plans, with which the range of alternative designs is virtually limitless—and the selection is high-risk.

In many companies, decisions about incentive pay continue to be made by a combination of human resources and the compensation committee of the board of directors. These decision-makers simply hand their plans to finance for execution. The problem is that with so many different design levers in play, it is easy to inadvertently set performance targets that are either unrealistic or overly lax. The end result of that mistake is disengagement and skepticism among recipients of the incentive program.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Recommended Stories

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2024 ALM Global, LLC. All Rights Reserved.