Incentive structures to determine executives' bonus pay are unsophisticated in their approach, according to High Pay Centre deputy director Luke Hildyard.
Speaking at the Xactly panel discussion Incentives: Toxic or Motivational?, Hildyard cited recent High Pay Centre research that suggests variable pay over the past few years has increased at up to four times the rate of average profitability.
He explained that some of this can be put down to "double counting", when bonuses are awarded against both quarterly an annual profits. But he also claimed executive incentive structures are flawed because they are primarily anchored to market value and profit, which he described as "very crude measures".
"For me they don't encapsulate what a company is meant to be achieving," Hildyard said. "You've got to think about brand power, investment, customer satisfaction, employee engagement – much wider indicators."
Speaking at the same event, Xactly SVP, strategy Scott Broomfield warned against incentives being "misaligned".
"You can have systems in place to automate the incentives right but you don't necessarily design the thing properly," he said. "And sometimes you can fail to communicate it properly so people are thinking: 'Does my incentive align with what we're trying to do in the rest of the company?'"
"To do this you need the visibility of the structures and also to make sure you're aligning the incentives with the long-term goals of the company," he added.
