from the Atlanta Fed
– this post authored by Madeline Marsden
In the aftermath of the financial crisis, incentive compensation arrangements in the financial industry were closely examined. These practices are an important element in attracting and retaining staff and in helping build high performance organizations. Appropriately structured arrangements align the interests of employees with those of the employer and benefit both parties. Inappropriate arrangements can lead to a disconnect between employee and firm success, such as when employees take ill-considered long-term risks in order to gain short-term rewards. The employee and the firm may show immediate profit, but the risk can come back to haunt the firm’s performance.