Bridget McKellar, Partner

bmckellar@hugessen.com

One Eye on the Microscope, One Eye on the Telescope: Rethinking Balance in Executive Pay

Last month, I attended The Conference Board's Executive Compensation Conference in New York. For me, the highlight was the opening keynote, The Role of Incentives in Driving Results. It was a fireside chat between Tamara Lundgren, retired CEO of Radius Recycling and experienced board director, and Steve Odland, President & CEO of The Conference Board and a director of General Mills. One phrase from the session has stayed with me: boards need one eye on the microscope and one eye on the telescope. 

The idea is simple: incentive programs must reward near-term execution while keeping long-term value creation in view. In practice, we know this is far easier said than done – and it comes down to balance.

The key is balance

When one metric dominates, unintended consequences follow. Too narrow a focus on margin can erode investment in people or operations; too narrow a focus on growth can lead to poor capital decisions. Incentive design must be integrated and aligned with the board’s conversations on enterprise strategy, risk and capital allocation.

The same need for balance shows up across almost every dimension of incentive design:

• Short- vs. long-term: the mix of annual and longer-term metrics and pay
• Lagging vs. leading indicators: financial outcomes alongside measures that drive them
• Controllable vs. uncontrollable: what management can and can’t influence
• Relative vs. absolute performance: paying for alpha without penalizing for beta, while recognizing that the shareholder experience is real
• Alignment vs. attraction and retention: linking pay to outcomes while staying competitive for talent

None of these is either/or. The right balance depends on the company, and will shift over time – what matters is making the trade-offs deliberately, and being able to explain why.

But keep it simple – and make room for judgment

Balance shouldn't become complexity. Both speakers stressed simplicity while acknowledging that there is no perfect system. This is where informed board judgment comes in. A simple formula will never capture everything, and shouldn't try to. Discretion allows a committee ask how results were achieved, not just what they were. It’s part of the balance itself: the predictability of a formula on one side, with the flexibility to respond to what the formula missed on the other. Discretion is most credible when it's anchored in principles agreed in advance, informed by the board's understanding of strategy and risk, applied in both directions, and clearly explained. Used this way, it isn't a back door around the plan – it's what allows the plan to stay simple.

Questions for HR committees

As committees head into the next pay cycle, a few questions are worth asking:

• Is our incentive design connected to the board's discussions on strategy and risk?
• Has short- or long-term performance started to dominate our program?
• Does our scorecard include leading indicators, or only financial outcomes?
• Can we separate management's performance from market conditions?
• Would executives and shareholders understand what the program rewards?
• Have we agreed in advance how we would use discretion – and could we explain it?

None of these questions has a formulaic answer, and that may have been the session's most important message. Good incentive design is a balancing act – one eye on the microscope, one eye on the telescope – and it still depends on informed judgment.