Case Studies:

Abstract

Many companies have adopted stock-based incentive plans for executives-and now for lower-level employees. In principle, these plans give employees a greater stake in the company, thereby creating a more motivated staff, while increasing the company's value. But the vast majority of a stock's price movement is attributable to macroeconomic factors beyond the scope of any one person's actions; this runs counter to the very idea of an incentive. Thus, a stock-based approach to valuing and rewarding the contributions of an individual or a group of employees is not sufficient by itself. A stock-based approach is best used in combination with reward measures grounded in the microeconomics of the business, according to the authors. In this article, the authors describe how three companies have found creative ways of compensating executives for creation of value by striking a balance that includes stock performance as well as other measures of business performance.