Many theoreticians and more than a few executives take the position that incentive compensation is a powerful motivator and therefore it follows directly that careful crafting of the incentive compensation program is all that it takes to get the most out of a company’s management team.
As an actuary working in a life insurance company where the executives believed that the right incentive compensation was key, I had the experience of modeling and advising on the development of a number of incentive compensation programs for the company’s distributors. Once in place, the reaction of the distributors was always similar; some people ignored the incentive compensation program, some worked the program as was hoped by the designers, and a few abused the program.
