The Advisors' Blog

I blogged recently about best practices for designing performance awards. If you want to stay in the good graces of your compensation committees and executives, it’s also helpful to have a few creative ideas up your sleeve – especially during times of business uncertainty, which seems to be pretty much all of the time right now. This Semler Brossy alert suggests five ways to “think outside the box” on performance award design:

1. Brutal simplification – Pick the one or two things that matter most right now that you can measure. Maybe it’s maintaining gross margin in the face of rising input costs. Maybe it’s the ramp-up speed of domestic manufacturing. Whatever it is, make it crystal clear and put serious money behind it.

2. The five to seven-year bet – Cancel next year’s standard equity grant cycle. Instead, make a single, multi-year grant that vests based on where the company stands in 2030 or 2032. No annual refreshes, no short-term metrics. Just one big bet on long-term value creation.

3. The horse race – If you can’t tell what “good” looks like in absolute terms, measure relative position. Rank your company against a carefully selected peer set or the broad economy—”the market”—and pay only for outperformance. This isn’t just about stock price; it can include market share gains, margin protection, or other competitive metrics. You could even combine absolute and relative performance: “We did well, and we won.”

4. The conscious placeholder – Implement a one-year fully discretionary program with transparent guardrails. Tell executives, “We don’t know exactly what success looks like, but we’ll recognize it when we see it.” Then, document your reasoning meticulously. Apply that discretion in the bonus and give everyone a modest RSU grant to totally get out of the goal-setting business.

5. Business as usual, with consequences – Keep your existing program but accept the tradeoffs: you might end up with outcomes that don’t align with your actual assessment of performance. Goals may need to be set so widely that they lose meaning, and you may spend the year-end in complex adjustment debates.

The alert delves into the pros and cons of each approach. It also explains which business situations would be most likely to benefit from each approach.

– Liz Dunshee