This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Tie Pay to Performance -- The Innovators

In light of recent events in which the role of government and executive pay has moved to center stage, the parameters of compensation have taken on a whole new twist. But whether publicly traded, privately held, or government-supported, the basis for compensation in all companies should ultimately rest with performance.

Tying compensation to performance is the most basic form of accountability. It seems such an obvious connection, yet I can't believe how frequently I find that year after year workers who don't meet their objectives continue to get pay raises. If there are no consequences for poor performance, you can't expect improvement. What you can expect is a company full of poor performers.

Accountability at the Top

Looking specifically at executive pay, the expectation for performance should be even greater. In fact, there should be a direct link between executive compensation and the company's stock performance -- a competitive base salary with bonuses and stock options tied to company financial performance exercisable in predetermined tranches instead of at will.

An effective way to link the two is to compare the company's stock performance to the S&P 500, as well as the company's peer group over an appropriate period of time. Maintaining a balance between short-term and long-term compensation is essential in order to promote effective risk-taking. Interestingly enough, in 2001 executive pay linked to stock performance was an issue and one of the biggest concerns was with Bank of America (BAC - Get Report). Perhaps if something had been done internally then, Bank of America would not be standing at the mercy of President Obama's pay czar Kenneth Feinberg as it is today.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AIG $63.59 0.55%
BAC $17.84 0.96%
F $14.90 2.40%
AAPL $123.88 0.90%
FB $95.22 1.10%

Markets

Chart of I:DJI
DOW 17,629.46 +188.87 1.08%
S&P 500 2,093.33 +25.69 1.24%
NASDAQ 5,091.1030 +51.3270 1.02%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs