Compensation Risk Assessments

In response to Securities and Exchange Commission requirements, most companies have eliminated the more obvious types of corporate exposure to imprudent risk taking linked to pay, such as megagrants of stock options, performance incentives based entirely on top-line growth or significant “guaranteed” severance packages. Risk assessments can dive deeper, though, to uncover risks or opportunities from pay plans that are not obvious on the surface. The risks include financial burdens placed on the company from the incentive plan, operational processes that fail to surface and mitigate errors in judgment or calculation of payments, plans that damage the company’s reputation and plans that have the potential to cause a loss of critical talent. In uncovering risks, opportunities to improve plan design and effectiveness are often revealed, as well.