Although the focus of risk management traditionally has been on downside risk, the time is right to focus this dialogue on upside risk — the management of value-creation opportunities through "rewards management." After all, rewards such as bonuses and stock options are typically greater for those who identify and leverage new value-creation opportunities. For-profit organizations favor those individuals who are well-connected and leverage their relationships to bring in clients and attract customers. Their selling ability, revenue-generating strategies, and overall modus operandi quickly earn them the coveted title of "rainmakers."
Nevertheless, rewards and incentives can encourage undesirable behaviors. Executives quickly learn that managing their organization's accounts is far easier than managing the organization itself; indeed, it is sometimes harder to make the numbers than to "make up" the numbers. This is a behavioral risk that can only be managed through human intervention and oversight; technology cannot ensure everyone complies with regulations or company policies, or that no one has unfairly benefitted from undisclosed conflicts of interest.
Copyright © 2010, Institute of Internal Auditors
Institute of Internal Auditors
Ramamoorti, Sridhar and Balakrishnan, Usha R., "Carrots and Sticks: By Auditing Executive Compensation and Benefits, Auditors Can Help Their Organization Move from Risk to Rewards Management" (2010). Accounting Faculty Publications. 93.
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