In 2018, a large manufacturer gave its top executives incentives focused on the usual investor-centric metrics, including revenue and profitability growth. Three years later, after several accidents that killed hundreds of customers, shut down factory lines, and triggered a shareholder lawsuit, the company fired its CEO and began the process of overhauling its culture. Giving inadequate priority to safety and quality contributed to lost sales and severe reputational damage, not to mention the lives lost.
Reevaluating Executive Compensation to Meet Stakeholder Needs
How boards can align executives’ incentives with the priorities of their employees, customers, and communities.
January 27, 2022
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Summary.
The ground is shifting for executive compensation, from a focus on shareholder metrics to a more intentional longer-term approach that better supports key stakeholders: workers, suppliers, communities, and customers. To make the shift, companies need to prioritize their key stakeholder issues, then identify which ones actually belong in a compensation package. The authors offer questions to help boards make these decisions and examples of how several companies have executed this change.