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Decisions about executive pay can have an indelible impact on a company. When compensation is managed carefully, it aligns people’s behavior with the company’s strategy and generates better performance.

When it’s managed poorly, the effects can be devastating: the loss of key talent, demotivation, misaligned objectives, and poor shareholder returns. Given the high stakes, it’s critical for boards and management teams to get compensation right.

Many struggle with this challenge. One problem is that only a few best practices work in all situations. So it’s imperative for companies to start with clear strategies and for their leaders to understand the basic elements of compensation and ways to link it to desired outcomes.

In this article we’ll describe how firms approach executive compensation and how some have used it to improve performance, sharing insights from our research and experiences.

Click here to read the full article on Harvard Business Review's website (HBR.org).

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Authors: FW Cook's Michael R. Marino and Metin Aksoy with Harvard Business School's Boris Groysberg and Sarah Abbott

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