The risk of executive reward

Executive pay has been in the headlines over recent months because of the growing disparity in remuneration between those on the shop floor and those at the top of the company. While public scrutiny seems to have done little to dent the appetite among directors for larger pay cheques, Yolanda Barreros Gutiérrez, writing exclusively for Enterprise Risk website, says the structure of compensation packages is introducing more risk to companies.

The schemes also tend to encourage the misreporting of results to boost greater return

This arises for two reasons, she says. When executive pay is linked to equity incentives, those executives tend to take on riskier projects because they have more potential for boosting remuneration results. Second, the schemes also tend to encourage the misreporting of results to boost greater returns.

These strategies offer mixed results for the company. Gutiérrez argues that the answer to this unwanted increase in risk lies in redrawing executive pay in a way that benefits the company first and the executives second.

Read the article here.

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