Getting Executive Compensation Family business, exec comp and LTIPs with John Butters - part 2 of 4
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Jan 8, 2024 John Butters discusses the importance of bonus schemes and incentives in motivating individuals. He explores how executive compensation influences behavior and company success. The podcast also delves into communication in Long-Term Incentive Plans within family businesses and the challenges they face competing with private equity firms.
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Effective Incentive Structure
- Structure incentives carefully by clearly defining the desired action (X) and the corresponding reward (Y).
- Avoid misaligned incentives where the reward (Y) doesn't motivate the desired action (X) or the desired outcome (Z).
Risk Shifting with Incentives
- Incentives shift risk from the company to the individual by tying rewards to performance.
- This arrangement benefits both parties: companies mitigate losses during bad times, and individuals can earn more in good times.
Incentives as Communication
- While money motivates everyone, the degree and manner of motivation are unpredictable.
- Incentives primarily serve as a communication tool, signaling the organization's priorities and desired behaviors.