Using rewards in implementing strategy

Abstract Corporations often find it difficult to carry out their strategies because they have executive compensation systems that measure and reward performance in a way that ignores or even frustrates strategic thinking, planning, and action. In particular, reward systems rarely emphasize the long run adequately, nor are they well coordinated with the methods and objectives of other management systems. This article describes three methods that can be used to match rewards with accomplishment of strategic goals: the weighted‐factor method which weights various performance measurements according to strategic objectives, the long‐term evaluation method, which ties compensation to goals achieved over a multiyear period, and the strategic funds deferral method which varies from the conventional financial accounting model for the measurement of performance. The article recommends that all three methods be combined into a single system in which the rewards for senior managers throughout the company are determined by the three methods in different proportions according to those factors that constitute successful performance in their positions.