Stern Stewart Research // Volume 40
Authors: Dr. Maximilian Koch and Markus Pertl
There have been very few topics lately that stirred up so many emotions like managers’ compensation. Not entirely without reason, as causal research of the current economic crisis has exposed. However, the partly understandable anger does not lead to meaningful solutions. Capping salaries takes away management’s incentive to participate in company’s success. It cannot be the goal of compensation to take away management’s belief in opportunities of entrepreneurial decisions, especially in times of crises.
There is no doubt, that the “standard compensation model” that was predominant – not only in
banking, but in many other management boards as well as in entire companies – does not meet the
requirements of today’s reality.
Truly entrepreneurial compensation schemes thus need to fulfil three central criteria:
- Creating clarity about definition and measurement of success
- Rewarding sustainable and long-term value creation
- Ensuring participation in entrepreneurial opportunities as well as risks
The sheer enormity of today’s crisis provides the possibility to bid farewell to traditional and outdated
compensation schemes and implement a real and sustainable participation of management in
opportunities and risks of the company.
