Pension Fund Incentive Design Audit

Background

Pension fund looking to conduct an audit of their incentive plan design five years after a major redesign to ensure continued alignment to their compensation philosophy and market practice.

Challenges

• Maintaining one plan design for both investors and corporate employees considering the differing nature of their roles.
• Balancing volatility in payouts considering the pension fund mandate and ability to motivate investors.
• Measuring forward-looking investment performance considering challenges with setting targets and differing time horizons for forward and backwards looking objectives.
• Preserving a plan that is understood by employees.

Results

We conducted a review of the current incentive design relative to design principles, stakeholder feedback, market intelligence, and best practice and identified opportunities for change. In close collaboration with the fund’s internal working group, we supported a series of design enhancements, including a unique long-term incentive design that emphasized forward-looking investment performance and aligned with the fund’s goals, even though it diverged from typical market practices.