Human Resources
Thought Leadership

Motivating Appropriate (Not Excessive) Risk: Do You Know How Your Compensation Plans Stack Up?

The severity of the recent economic downturn has brought back corporate discussion about risk and risk management. Downturns tend to have this effect. During periods of prosperity, discussions of risk management often get preempted by growth, as if the good times will never end. But, how do you know if strong short-term financial performance is due to excellent strategy, execution, and risk governance—or comes from excessive risk taking?

It is difficult for the board of directors to know for certain, but they should know, and regularly require management to quantify, the fundamental sources of enterprise risk. They should also know how the capital structure is leveraged to withstand extended earnings slumps or lack of credit.

Read our newsletter that discusses compensation risk assessment and management. (PDF format)