2003-06-30-Bain-Fixing_Executive_Pay_3页_135kb

Executive Compensation Summary: Linking Pay to Performance and Shareholder Value

Key Principles

• Be Clear on Measures: Define and track factors that drive business value internally and externally, ensuring compensation is tied to performance.
• Tie Compensation to Strategy: Link pay directly to value creation, using metrics like share price and business performance, while accounting for external factors.
• Cascade Incentives: Extend performance-based incentives to all levels of the organization to align on shared goals.
• Be Simple and Transparent: Design compensation systems that are easy to understand, fostering trust among employees and investors.

Examples

• Eli Lilly: CEO voluntarily reduced salary and advocated for pay cuts tied to performance during financial downturns to demonstrate accountability and link compensation to shareholder value.
• Dell Computer: Uses cost-effective strategies and equity-based compensation tied to value drivers such as operating profit margin and customer satisfaction, motivating executives and employees to enhance shareholder returns.
• Reckitt Benckiser: Implements long-term incentives with strict conditions, such as growth targets and minimum share holdings, ensuring executives share both upside and downside.
• eBay & Nucor: Cascades incentives to frontline employees (e.g., customer service and mill workers) through performance metrics, aligning their efforts with company strategy for sustained profitability.

Conclusion

The focus should shift from questioning executive overpayment to improving how compensation systems effectively link pay to enduring organizational performance, requiring systemic changes rather than individual actions alone.