Bonus Index Benefit: End of the Bonus Debates
The Obermatt Bonus Index makes executive compensation stable - which is what beneficiaries want - and transparent - which is what shareholders demand. Last but not least: The compensation amount is in line with the expectations of both the beneficiaries and the shareholders. This effectively ends all bonus debates, because if everyone gets what they want, then discussions are no longer needed. Last but not least, a peer review motivates better than compensation based on fixed targets and formulas.
Stable compensation - for executives
Indexing neutralizes economic cycles, raw material price moves, and exchange rate fluctuations so that it only measures the part of the performance that executives control. This means that executives have more control over their performance and can better manage the fluctuations in their bonus payments. Using operating financial indicators for bonus payments further reduces volatility in pay than compensation plans based on fixed targets or relative total shareholder return which often changes more dramatically than people think. Less volatility means more satisfied executives and fewer debates about the bonus. Read crises-proof executive compensation, Financial Times on the search for the right bonus formula and watch Hermann Stern's interview on YouTube.
Full transparency - for shareholders
Indexed compensation systems provide stable compensation with full transparency because all information is public by definition. Published performance is compared to peer companies. This has the advantage that the whole system can be disclosed at any time to all parties. Therefore, shareholders can even vote on the Bonus Index prior to implementation which gives executives more compensation security. Full transparency by the elimination of all subjective judgments reduces the bonus debates significantly - especially when you consider that the payments are stable and meet the expectations of board members and shareholders as shown below.
Fulfilled expectations - more predictable pay for everyone
The biggest compensation issue is unrealized expectations. Executives are disappointed when they get nothing despite great effort, shareholders are disappointed when payments are high despite poor performance. The stable and transparent Bonus Index avoids both pitfalls because it guarantees that the executives are compensated in line with the market. This is often not currently the case, because overly optimistic goals often lead to below average compensation. This demotivation can be avoided. But the Bonus Index also prevents the selected cases of excessive compensation, so that shareholders get what they want, full performance transparency of pay. Fulfilled expectations mean the end of the bonus debates.
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We will arrange personal contacts with people who have been satisfied with the Bonus Index for years. From compensation & benefit professionals to the chairman of the board - we have customers that are available for reference.