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An Investigation on Possible Links between Risk Management, Performance Measurement and Reward Schemes

Author

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  • Selena AURELI

    (Urbino University, Italy)

  • Federica SALVATORI

    (Modena and Reggio Emilia University, Italy)

Abstract

The ongoing global financial crisis underlined the urgent need of changing traditional executives compensation schemes. Governments and authorities reacted through regulation and standards, while professionals and academics have suggested several new pay mechanisms (e.g. deferred bonus). Given some limitations of the above-mentioned solutions, the paper aims at understanding whether they can be improved by introducing incentives strictly tied to companies’ risk metrics for executive members of the Boards and top managers with strategic responsibilities. The link between monetary incentives and the achievement of desired risk-adjusted performance is thus proposed and explored. Following a qualitative methodology, four case studies were carried out using semi-structured interviews with Italian risk managers and human resources managers. Results show that a reward system based on risk measures is welcome and feasible, if not already adopted. It needs to be carefully tailored to each company. Lastly, its adoption and implementation rely on various contextual conditions and can be hindered by some difficulties in risk measurement. The paper contributes to the reward and risk management literature by investigating new tools to satisfy the need of sounder compensation practices.

Suggested Citation

  • Selena AURELI & Federica SALVATORI, 2012. "An Investigation on Possible Links between Risk Management, Performance Measurement and Reward Schemes," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 11(3), pages 306-334, September.
  • Handle: RePEc:ami:journl:v:11:y:2012:i:3:p:306-334
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    References listed on IDEAS

    as
    1. Alex Edmans & Xavier Gabaix & Tomasz Sadzik & Yuliy Sannikov, 2009. "Dynamic Incentive Accounts," NBER Working Papers 15324, National Bureau of Economic Research, Inc.
    2. Peter Wright & Mark Kroll & Jeffrey A. Krug & Michael Pettus, 2007. "Influences of top management team incentives on firm risk taking," Strategic Management Journal, Wiley Blackwell, vol. 28(1), pages 81-89, January.
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    Cited by:

    1. Fornasari, Tommaso, 2020. "Il ruolo dei comitati di responsabilità sociale nella corporate governance [The Role of CSR Committees in Corporate Governance]," MPRA Paper 111192, University Library of Munich, Germany.
    2. Posch, Arthur, 2020. "Integrating risk into control system design: The complementarity between risk-focused results controls and risk-focused information sharing," Accounting, Organizations and Society, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Risk; executive compensation; reward; performance indicators;
    All these keywords.

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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