• Date: 1/2/2014

Tying risk to compensation 

These steps would help to create a risk-aware culture, but more needs to be done. Survey respondents admit they have to motivate business managers to make riskaware decisions by linking their performance in this area to compensation. Fifty-two percent of those in ENR said there was a weak link between risk management and compensation.

Briers says that companies with advanced risk management processes sometimes tie performance in this area to compensation: “when it’s in place, it’s very effective.” For ENR companies, the record is mixed in this regard. The management of health, safety and environmental issues are usually tied in some way to compensation, but risk management more generally is hard to define, he believes. There are other ways to achieve similar results, such as auditing. A company will document risk control standards for risks identified at an operational level and then audit managers to see whether they are complying with these standards. If a team or department achieves a high score in its risk-control audit, it might lower the unit’s insurance contribution and raise its share of the bonus pool. “Now you have a score you can build into a formula for performance management,” argues Briers.

Compensation incentive structures

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