Talent, Risk, And Executive Compensation Assignment

Playbook Activity 2.1: Talent, Risk, and Executive Compensation

An organization pays incentives to the executive team, who play a significant role in decision making and are responsible for the organization's strategy and overall value creation. The purpose of base salary, bonuses, and incentive-based pay for performance structures is to attract, retain, and motivate high-quality candidates.

The fiduciary duty of boards includes generating long-term shareholder value, and the board should ensure that executives are effectively managing key financial risks, such as:

• Liquidity and cost of capital risks
• Regulatory and compliance risks
• Volatile interest rates, foreign exchange (FX), supplier, and inflation risks
• Valuation and financial reporting risks
• Other macroeconomic factors and their impacts on business operations

Boards face the challenge of designing executive compensation that will allow the organization to recruit and retain management talent while creating a disincentive for managers to increase the organization's risk exposure to meet short-term compensation targets. Aligning executive compensation with the organization's long-term strategy should limit executives' incentive to make decisions that improve short-term metrics but increase the organization's risk exposure.

The corporate board of directors also need to consider an executive's appetite for risk by overseeing the organization's risk exposure to ensure it aligns with that executive's appetite. During times of financial crisis, taking an organization public, or managing a start-up, the board should closely consider an executive's fundamental risk management parameters while monitoring emerging risks and opportunities.

Respond to the prompts below.

An organization needs to attract and retain the right person for a particular executive role. Senior executive talent is rare, but start-up tech organizations often attract more risk-tolerant candidates to fill executive roles. Why do you think this is?

Identify and briefly discuss one example of an organization where this is the case.

Under what circumstances would an organization wish to attract risk-tolerant executives?

How does an organization factor this risk when designing an incentive compensation contract for such an executive?

Playbook Activity 2.2: Contract Effectiveness

Executive compensation contracts have several purposes. Primarily, these contracts attract, retain, and motivate senior executives. In addition, these contracts need to align with organizational goals or key performance indicators (KPIs) to ensure that senior executives prioritize the objectives and mission of their organization.

Do you believe the organization's compensation contracts effectively attract, retain, and motivate senior executives? Explain why or why not and provide an example.

Describe how the organization's executive compensation contracts align with its goals and key performance indicators (KPIs). Provide examples with specific metrics.

Playbook Activity 2.3: Performance-Based Incentives

Use this activity as an opportunity to consider the most effective ways for an organization to incentivize senior executives by measuring performance.

Reflect on your organization or an organization of your choice's use of performance-based incentives.

Explain how that organization structures and administers performance-based incentives and if this method successfully incentivizes executives.

Playbook Activity 2.4: Compensation Plans that Drive Performance

Read the article “Compensation Packages That Actually Drive Performance” to examine how organizations approach the design of senior executive compensation plans and how they have leveraged such plans to improve performance.

For this activity, please consider what performance measures are important to the organization of your choice and how you can use them to drive senior executive performance.

Consider the research used by the article’s authors to identify strategies for driving performance, including their findings on how boards approach executive compensation. Think of your organization or one familiar to you and address at least two of the prompts below:

According to the study’s authors, a poorly structured and implemented executive compensation plan can lead to outcomes such as misaligned objectives, loss of key talent, and unmotivated executives. Briefly discuss an instance when your organization experienced one of the above outcomes.

Provide an example where the board did not consider the personality of a senior executive when structuring that executive’s compensation plan. What was the result, and how did it impact the organization?

The authors discuss how, in a long-cycle capital organization, the design of compensation structures is usually long term to incentivize sustainable long-term behavior that aligns with the organization’s objectives. Discuss one example from your own experience where executive behavior led to positive long-term organizational outcomes.

The COVID-19 pandemic changed how executive compensation contracts are designed and received. How did the pandemic affect contracts in the organization?

How can an organization design compensation contracts that drive performance?

Playbook Activity 2.5: ESG and Contract Effectiveness

Performance measures are important components of executive compensation contracts. Now, you have the opportunity to explore the value of ESG metrics for your organization.

After watching Videos 3.7 and 3.8 from our visiting professor, Mae McDonnell, read the following article “Executive Pay and ESG Performance.”

Reflect on how executive compensation plans incentivize performance against ESG metrics to ensure that senior executives prioritize it.

Examine your organization or one familiar to you and focus on ESG and its linkage to executive compensation contracts. Respond to the prompts based on your experiences.

How are ESG targets related to long-standing social and governance metrics, such as health and safety, risk, and employee engagement?

Has the organization identified new ESG targets related to more recently emerging stakeholder concerns, particularly around climate change, sustainability, and diversity and inclusion? Explain your answer with examples.

How are your chosen ESG measures aligned with the organizational strategy? How do they create shareholder value?

What are the significant difficulties of including ESG targets in executive compensation?

Explain how the organization mitigates the risks of including ESG targets in executive pay In your opinion, should ESG be linked to executive pay? If yes, then with what caveats?

How can ESG goals be achieved without linking the metrics to executive pay?

Are you struggling to keep up with the demands of your academic journey? Don't worry, we've got your back! Exam Question Bank is your trusted partner in achieving academic excellence for all kind of technical and non-technical subjects.

Our comprehensive range of academic services is designed to cater to students at every level. Whether you're a high school student, a college undergraduate, or pursuing advanced studies, we have the expertise and resources to support you.

To connect with expert and ask your query click here Exam Question Bank