Managing Risks in Incentive Compensation Plans

Incentive compensation is a particularly critical issue for job seekers, employees, employers and shareholders. Attention has typically focused on the role of incentive compensation in attracting and retaining employees along with incenting behaviors in line with strategic objectives. However, recent market events have shifted the focus to risks that may be inherent in incentive compensation arrangements. These risks may be particularly difficult to identify and manage and, as such, companies should consider implementing robust risk management processes for proper alignment of incentive compensation with both strategic objectives and company risk appetite.