August 12, 2013
Survey: Tightening Incentive Plan Performance Criteria a Top Priority
– Broc Romanek, CompensationStandards.com
This Towers Watson article by Doug Friske analyzes this recent survey of HR and Finance executives:
As pay-for-performance alignment takes on growing importance for shareholders and performance plans play a larger role in the typical long-term incentive portfolio today, we’re also seeing more convergence between the views of Finance and Human Resources leaders in many of our client companies. One key area of relative agreement is the need for carefully calibrated performance standards for incentive compensation programs. For example, a recent Towers Watson survey of senior HR and Finance executives found tightening performance criteria for incentive pay programs to be among the most common actions taken in recent years and one of the top five priorities for the years ahead, cited by two-thirds of the HR executives surveyed and 62% of the respondents overall.
Conducted earlier this year with Forbes Insights, the survey focused on the degree of alignment and collaboration between senior Finance and HR executives on a broad range of talent and reward issues, including executive compensation. The survey elicited responses from 218 Finance executives and 122 HR executives, primarily in large, global organizations. Slightly over half the respondents work in financial services, health care or manufacturing.
Among the key findings, both HR and Finance agree that the top risks posed by their companies’ reward programs are all talent-related, ranging from insufficient leadership development to retention concerns and the appropriate level of investment in talent. The survey also revealed some interesting disconnects between HR and Finance. For example, Finance executives are less likely than HR execs to view executive incentive programs as appropriately structured to discourage excessive risk-taking. Almost three-quarters (74%) of the HR executives believe their executive incentives effectively discourage excessive risk-taking, compared to only 58% of the Finance executives surveyed, possibly reflecting HR leaders’ deeper appreciation for the behavioral implications of incentives or maybe Finance leaders’ greater sensitivity to the risk implications.