Comp Targets That Work
by Radhakrishnan Gopalan, John Horn, and Todd Milbourn
SETTING EXECUTIVE PERFORMANCE targets is one of the main responsibilities of any board of directors. Unfortunately, it’s a task boards struggle with. From 2006 to 2014 nearly all of the 1,000 largest U.S. firms by market cap completely changed the metrics in their CEOs’ pay-for-performance contracts at least once, and almost 60% changed them more than once. In some cases, of course, the revisions reflected shifts in strategic imperatives, but in many others they were attempts to fix problems that the metrics themselves had created.
The troubles associated with executive performance targets are well known. Most often they encourage short-termism. Cutting research and ...
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