Compensation Design Practicum

Rewiring Executive Incentives

Most compensation plans are designed by HR consultants who inherently benchmark to the median, creating a mathematical guarantee of upward drift. This practicum teaches independent directors how to wrest control of the process and align pay exclusively with long-term capital efficiency.

Traditional Metric	Flaw	Our Recommended Alternative
Relative TSR (3-Year)	Incentivizes leveraging the balance sheet for buybacks.	Return on Invested Capital (ROIC) over 5 years.
Adjusted EPS Growth	Can be manipulated via one-time write-offs.	Unadjusted Free Cash Flow per Share.

Common Mistakes

Symmetric Caps and Floors: Setting a max payout at 200% for good performance, but allowing the base salary + cash bonus to act as a soft floor during value destruction.

Interactive Tool: Pay-for-Performance Coupler

Target Total Direct Comp ($M): Stock Price Drop (%):

Review our executive compensation research or try the Say-on-Pay Predictor.