The New Standards: Methods for Linking Business Performance and Executive Incentive Pay.

• Author: Marshall, Jeffrey
• Position: Brief article - Book review

The New Standards: Methods for Linking Business Performance and Executive Incentive Pay. By Richard N. Ericson. John Wiley & Sons, 325 pages. $75.

The source of considerable angst from both management and shareholders in recent years, incentive pay plans are ripe for detailed analysis. Here, Richard Ericson--a noted consultant, with Towers Watson--delivers a thorough, often exacting, book that covers just about anything senior management and directors should consider when constructing (or deconstructing) their plans.

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He starts from the premise that most incentive plans don't work well: they reward the wrong goals, and do a poor job of linking pay with shareholder value. Indeed, he notes, poorly designed plans can create a litany of woes--for example, driving excessive risk-taking, encouraging executives to manage expectations, and consistently focusing on short-term results over long-term value...