HR and reward professionals have a once-in-a-lifetime opportunity to make a difference in the debate about executive reward, but this opportunity will be lost unless they can stand toe-to-toe with their peers in understanding business strategy and relevant financial fundamentals.
A UK Performance and Reward Centre (PARC) report has found that there is an urgent need for a fundamental rethink about the design and delivery of executive reward. Short-term financial results usually dominate executive reward systems, but these financial metrics have significant limitations.
“They tend to look backwards not forwards – and are not as concrete as we would like to believe,” the PARC report said.
“Intangible assets, such as innovation, customer relationships, brand and intellectual capital,now outweigh traditional tangible assets in terms of book values. These are the hidden value creators – the primary source of current and future business success. The challenge is to identify the intangibles and integrate them into executive reward plans.”
The report also said that the current corporate governance rules and regulations are distracting boards from the real strategic issues which add value – while non-executive directors are hamstrung by increasing complexity, the prescriptive impact of benchmarking and the concern to avoid controversy.
“All companies are different and there is no instant solution,” the report said. “However, the broad concepts of sustainability and resilience provide a road map which will allow companies to change the prevailing reward culture pragmatically, and to consolidate these changes.”