Stories from the world of executive compensation
Do you know the compensation fairy-tales?
If not, then you will have almost as much fun learning them from Obermatt CEO Hermann Stern as when you were listening to a storyteller when you were a child.
Executives are greedy
Many people believe that executives are simply too greedy. Which is why executive bonuses have sky-rocked. But, this is a myth. The true culprit of excessive bonuses is not greed but lack of transparency in bonus payments.
Only profit counts
Others believe that executives should deliver primarily strong financial results. But, the reality is that most people select other metrics when evaluating performance and make many mistakes interpreting them.
Goals must be met
And even more people think that compensation should be based on targets. Neither psychology nor behavioral economics have ever proven that executives deliver better performance when rewarded for reaching goals. In fact, the opposite has often been the case.
Read the fairy tales
Obermatt trilogy for broadly accepted compensation
We have put together a trilogy of recommendations that avoids the common fairy-tales and helps you gain acceptance for your compensation systems among recipients, managers, and shareholders.
Managers want stable compensation
The most important aspect of gaining acceptance for bonus plans is stability in compensation. Many believe that varying compensation levels lead to higher motivation. Behavioral economists can only prove the opposite. Aim for stability in your compensation systems: for example, by indexing your performance measurement to neutralize external cycles.
Shareholders want transparent compensation
What irritates managers and employees most about compensation levels is when they cannot follow how they've been calculated. Avoid confidential components in your compensation such as strategic goals or annual budgets, because your credibility wanes as the simplest issue arises. It is better to measure your performance relative to the market - that's something you can openly communicate to everyone.
Managers and shareholders want simple compensation
Make it as easy as in sports. Compare your company performance against the competition. One recognizes immediately when a bonus is deserved and when not. The more competitors have been beaten, the better the performance and the higher the bonus should be - regardless of the current state of the economy, internal (and often outdated) plans and personal (often tainted) opinions.
Go to the Bonus Index Trilogy