Discipline and Process

The key elements to consistency are discipline and process. Process provides a framework and discipline provides the follow through. Consistency, as I am acutely aware, as a new blog author is a significant part of the formula for success in writing a blog. Consistency is also a significant part of the formula for avoiding issues that might be identified as "unnecessary or excessive risk taking." These terms as applied to a certification requirement for participants in the TARP capital infusion program aren't defined. HR, legal and risk managers have little choice but do craft a rational process from whole cloth that will provide a basis for certification. The first step is to establish a disciplined process for review of the incentive program to insure that intended or unintended consequences are not excessively risky.

The old adage in incentive design "be careful what you ask for because with incentives driving behavior you will get it"; now carries the risk of noncompliance with a federal mandate associated with use of government funds. This small wake up call is a good reminder about the importance of process and identification of risk potential in incentive design whether or not TARP funding is involved.

Relying on competitive information about program design won't be sufficient. A process needs to be in place that includes a disciplined review and documentation of an analysis of the rationale for the program design. Anticipated outcomes and risk mitigation factors should be clearly identified. The challenge as always will be one of balance - sufficient incentive to promote entrepreneurial risk taking moderated by incentives designed to protect shareholders and the enterprise from significant negative consequences. After all that is exactly what shareholders are expecting of management.