Performance Measurement and Goal Setting. How to Create a Rewarding Environment: The Dilemma of a Cyclical Business

Challenge: This large company was looking for a long-term performance plan in the volatile gas industry. With a business mix more leveraged to gas (more of a gas pure-play) than other oil and gas peers, the company wanted to implement a plan that would properly hold executives accountable for company performance.

Approach: Farient evaluated the impact of commodity prices and business mix on financial results and Total Shareholder Return (TSR), reviewed peer PSU practices, explored the potential use of various financial measures and TSR, and developed various methods for calculating relative TSR. To meet the company’s objectives, we recommended it consider a new peer group, relative measures that adjust for the effect of commodity prices and business mix, as well as identify a performance period with the proper risk profile for the business and market contexts.

Result: This recalibration enabled the client to provide defensible pay and performance alignment for shareholders and, equally important, better line-of-sight of operational performance with pay outcomes.

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