Insurance companies’ risk management practices came under great scrutiny as a result of the financial crisis. Ensuring that the structure of incentive compensation does not promote unnecessarily risky behavior has been the subject of many recommendations by regulatory agencies, Congressional mandate and commentary from professional organizations. At times, it seems these efforts may be aimed at trying to create (and enforce on the industry) one “perfect” incentive plan.
No single incentive design can fit every circumstance. However, organizations that follow a set of key principles can design effective incentive plans that align with organizational strategy, motivate individuals and teams to achieve incremental performance, and incorporate appropriate risk-adjusted design safeguards.
