How Do Employee’s Perceive Long-Term Incentives?

How Do Employee’s Perceive Long-Term Incentives?

By Bertha Masuda

What value do participants place on receiving compensation 1, 3 or 5 years from today?  This important question arises when designing a meaningful long-term incentive plan.  We know that people prefer to receive money today (a certain event) rather than in the future (a more uncertain event).  The question is how much more do we need to receive in the future to compensate for the delay and the uncertainty?  According to Professor Adam Alter, NYU Stern School of Business, people equate $1 today to $1.50 in one year, $1.70 in three years to $2.50 in five years based on his review of numerous academic studies on the subject.  This finding has implications on how to set the target and maximum payout levels for annual and long-term incentive plans.

Read more about establishing plan payout levels

Board of Directors Pay Plans

No Comments

Sorry, the comment form is closed at this time.