Do You Understand All The Risks Your Pay Programmes May Create?

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Do you understand all the risks your pay programmes may create? Have you asked yourself the following questions?

Do you understand all the risks your pay programmes may create?
1.Incentives – are you comfortable that your plans do not encourage 'risky behaviour '? A steep leverage curve can tempt reckless behaviour; executives overly focused on short-term results can pose risk to long-term value creation. Separately, executives with significant shareholdings can become risk-averse and miss opportunities.
2.Termination – have you assessed the tail risk? In many cases holding periods and share ownership guidelines cease to apply enabling the executive to sell shares post-employment. A large sale could impact market sentiment and raise questions. In combination with declining business performance the company could face accusations of payments for failure.
3.Clawback – do the provisions in place provide enough protection? Depending on the nature of the business, the event requiring clawback may not be apparent until several years in the future. The event in question may also not even fall within the scope of the clawback provisions and the lack of ability to act appropriately in such scenarios can pose a reputational risk to the company.
4.Recruitment/retention – have you assessed the talent risk? Failing to retain key talent can pose a significant risk to the company. Retention bonuses and emergency recruiting can pose both financial risk and reputational risks.

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