Market Issues in Focus: Goal Setting
Farient believes that of all the design features of compensation, goal setting has one of the most significant effects on alignment. Goal setting is all about striking the right balance between establishing measures and setting goals that are at once motivational to executives and accretive to shareholders. Historically, most companies set goals relative to a budget that is established from an internal perspective, which we refer to as a “mark-to-budget” approach. In contrast, we believe goals also need to be set relative to standards that support stock price increases and create shareholder value over time, which we refer to as a “mark-to-shareholder” approach.