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Making Bonus Systems Fair and Crisis Proof
Making Bonus Systems Fair and Crisis Proof is a working paper by Hermann J. Stern with 11 pages, 3 graphs and 2 tables that discusses improvements for bonus plans after the credit crisis.
Abstract
While the current financial crisis has challenged nearly everyone from management to media, it has exposed some fundamental flaws in management pay. In recent years, bonuses have been too high in up-cycles and they now risk being too low in the current downturn. Adopting an investor's perspective addresses the impact of external factors in distorting actual performance. By measuring operating performance only - irrespective of the economy's performance - bonus systems become fairer and longer lasting. This article illustrates options for designing bonus targets using Bell Helicopters, owned by the industrial conglomerate Textron, as an example.
Source
Free download of this paper at the Social Science Research Network. Click here.